What is a Ponzi scheme?

A Ponzi scheme is a type of investment fraud law in California. It is a fraudulent investment scheme in which people are lured into investing money with the promise of receiving high returns. In reality, no investment is actually made and the money is instead used to pay off older investors, giving the appearance of high returns. The scheme is named after Charles Ponzi, who established a pyramid scheme in Boston in 1920. In a Ponzi scheme, the perpetrator will offer potential investors unusually high returns, often around a hundred percent or more in a very short period of time. The perpetrator will usually keep a portion of the money for themselves. They will pay back some of the money to the original investors to give the appearance that their investment is making huge returns. The Ponzi scheme is illegal and those found guilty of running such a scheme can face serious legal consequences. In California, those guilty of fraud can be charged with a felony, face up to five years in prison, and receive substantial fines. The penalties are even more severe if the perpetrator was acting in concert with others, meaning they had the help of others in setting up and running the Ponzi scheme. It is important to understand the dangers of Ponzi schemes and to be aware of the legal implications of participating in one. If you believe that you may be the victim of a Ponzi scheme, be sure to seek legal advice as soon as possible.

Related FAQs

What is the difference between a broker-dealer and an investment adviser?
What is the difference between a registered and unregistered security?
What are the warning signs of a Ponzi scheme?
What is the purpose of the Investment Advisers Act of 1940?
What legal recourse do I have if I am the victim of investment fraud?
What is a Securities and Exchange Commission (SEC) investigation?
What documents should I review before investing?
What is the difference between a broker-dealer and a registered investment adviser?
What is an offering memorandum?
What is the difference between a mutual fund and a hedge fund?

What is a Ponzi scheme?

Related FAQs

Related Blog Posts