Ponzi Schemes

Discovering that your investment was a Ponzi scheme is devastating. The money you thought was growing was often never really invested at all — and by the time the scheme collapses, the person who ran it may be gone or out of funds. But that is not always the end of the story. Depending on the facts, a brokerage firm or advisor that sold or recommended the investment, or failed to supervise the person who ran it, may share responsibility.

You Were Targeted, Not Careless

Ponzi schemes are built to look legitimate and to win your trust. They are often promoted by people who seem credible, sometimes through a brokerage firm or a trusted advisor. Being drawn in does not make you careless. The law focuses on the people and firms that created or enabled the fraud — and on whether a brokerage firm that should have caught it failed in its duty.

How a Ponzi Scheme Works

A Ponzi scheme pays existing investors with money taken from new investors, rather than from any real profit. The SEC’s Investor.gov describes the same pattern and lists common warning signs. As long as new money keeps coming in, the returns look steady and impressive. Common features include:

• Returns that are unusually high or suspiciously consistent
• Pressure to reinvest rather than withdraw your money
• Vague or secretive explanations of how the money is invested
• Account statements produced by the promoter rather than an independent custodian
• Trouble getting your money out when you ask for it

Who May Be Held Accountable

Even when the person who ran the scheme cannot repay you, recovery may still be possible from others who played a role, such as:

• A brokerage firm or advisor that sold or recommended the investment
• A firm that failed to supervise the person running the scheme
• A brokerage firm that ignored warning signs it was required to act on

Because the individual who ran the scheme may no longer have the money, recovery may focus on the firm that enabled the fraud or failed to catch it, depending on the facts.

Signs You May Have Been Affected

• The returns seemed too good to be true
• You were pressured to reinvest instead of cashing out
• You suddenly cannot withdraw or locate your money
• The investment was promoted by someone you trusted at a brokerage firm
• The fund has stopped communicating or has collapsed