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What makes a business a Ponzi scheme?

On Behalf of | Sep 20, 2022 | Federal Criminal Defense

A fraud conviction in federal court can land you in prison for years, end your business career and ruin your reputation with your family, friends and community. One of the most common reasons that federal prosecutors bring fraud charges against someone in the Dallas-Fort Worth metro area is for allegedly conducting a Ponzi scheme.

You have probably heard the term “Ponzi scheme” before, but you might not know exactly how one works. Here is a brief overview.

Using investors to pay off other investors

A Ponzi scheme is a form of investment fraud. The person or people behind it convince others to invest their money in what they claim is a legitimate investment opportunity with little or no risk. But instead of using the money to help run a business that provides a legitimate product or service, the Ponzi scheme uses the money to pay off prior investors (and keep some for themselves). Thus, a Ponzi scheme is a form of pyramid scheme where the money trickles upward to the people at the top. This cycle requires the individual or individuals to find new “investors” constantly. Most Ponzi schemes eventually collapse when the perpetrators run out of new victims.

Take fraud charges seriously

The U.S. Securities and Exchange Commission (SEC) aggressively investigates claims that someone was defrauded in a Ponzi scheme. If convicted, you could face decades in prison. It is not unusual for defendants in high-profile cases to be sentenced to 30 years or more behind bars. With your freedom at stake, you must take federal fraud charges very seriously. That includes finding a defense attorney who regularly practices federal criminal law.