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How to Avoid a Ponzi Scheme

Even investors who think they’re making safe moves with their money can fall victim to a scam. Financial advisors and their companies can utilize many methods of fraud and misrepresentation for their benefit, which is unethical and illegal. A Ponzi scheme is one type of fraud that a group of investors may find themselves facing.

A Ponzi scheme is when an individual or organization pays returns to its investors from new capital paid to the operator by new investors rather than from revenue earned through legitimate sources. Ponzi schemes are named after Charles Ponzi, who became notorious for using the technique in 1920. Scammers who start Ponzi schemes make their money by recruiting new investors rather than through legitimate business activities.

Warning Signs

There are numerous warning signs investors should be aware of if they feel their finances are being mismanaged as part of a Ponzi scheme. Investors should watch out for:

  • Offers of high, guaranteed, or risk-free returns;
  • Minimal or no investment experience or background required;
  • Recruitment of new investors to generate returns for older investors;
  • Use of new investor funds to pay promised returns to earlier investors;
  • Paying returns to investors out of funds raised from new investors rather than from legitimate business activities;
  • Secrecy or lack of transparency about investment practices; and,
  • Difficulty withdrawing funds or getting answers to questions about their investment.

How to Protect Your Investment

Investors can better protect their investments by utilizing these strategies.

  • Research an investment before handing over any money. Check out the company and the individual behind the investment opportunity.
  • Ask questions and get answers in writing before investing. Understand how the investment will work and what fees or charges are involved.
  • Avoid investments that promise high returns with little or no risk.
  • Keep investment activity confidential.

The bottom line when it comes to someone else managing your investment: if the deal sounds too good to be true, it probably is.

New York Ponzi Scheme Lawyers

Ponzi schemes are illegal in the United States and many other countries. If you think your investments were mismanaged as part of a Ponzi scheme, it’s essential to contact an experienced Ponzi scheme attorney to review your situation. The New York securities litigation lawyers at Weltz Law are ready to review your case if you believe your investments are being misrepresented. With a free consultation, you can feel better about your situation. Reach out to our team online or by phone. (877) 905-7671