What is a Ponzi Scheme in securities fraud?

In Utah and other states, a Ponzi Scheme is a form of securities fraud. It is a fraudulent investment operation where the perpetrator pays high returns to investors from their own money or money from other investors, rather than from profits earned by the investment. The scheme derives its name from Charles Ponzi, who ran the first known Ponzi Scheme in the United States in the 1920s. Ponzi had promised investors that he could make them rich by investing their money in postal coupons and reaping profits from differentials in international postal rates. However, he used most of the money he received to pay earlier investors, so there was no actual profit from the investment. In a Ponzi Scheme, the perpetrator typically pays early investors high returns with money that was recently deposited by new investors. As long as new investors are continually depositing more money into the scheme, the investors at the beginning will continue to receive returns. This creates the impression that the scheme is a legitimate investment. However, once the scheme stops attracting new investors, it will collapse and investors will realize that they are not receiving returns from any legitimate profits. They will be unable to recover their original investments, and they may suffer other losses as well. For this reason, it is important for investors to be aware of potential securities fraud, including Ponzi Schemes. In Utah and other states, it is important to be aware of red flags that may indicate a Ponzi Scheme, such as promising unusually high returns, requiring investments to be kept secret, or refusing to provide detailed information about the investment.

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What is a Ponzi Scheme in securities fraud?

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