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What is a Ponzi scheme?

On Behalf of | Jul 15, 2022 | Criminal Defense

White-collar crime is on the rise in Colorado. The Denver Post reports that rates are increasing year over year, due to our technologically advancing society creating more opportunities for these so-called “victimless” crimes.

White-collar crimes are broadly defined as nonviolent crimes, typically involving business dealings, committed by individuals or organizations for financial gain. Most white-collar crimes involve fraud that results in loss to a business entity as opposed to an individual.

However, not all such crimes are “victimless.” There is a particular type of white-collar crime that targets individuals as opposed to corporations. This type of fraud is a Ponzi scheme.

How does a Ponzi scheme work?

With a Ponzi scheme, a criminal poses as the head of an investment opportunity or company and convinces people that this opportunity is a sure thing with high rewards. However, instead of investing the money, the schemer takes the money from new investors to pay existing investors. This makes the scheme appear legitimate, allowing the scam to continue.

How does a Ponzi scheme end?

The scheme depends on a constant inflow of new investors. When the current investors wish to cash out, or if new investors become difficult to find, the scheme collapses.

Do these schemes exist in Colorado?

Yes. Prosecutors brought charges against a Ponzi scheme mastermind as recently as December 2021. The man pled guilty to a multi-million dollar fraud involving cattle.

White-collar crimes are serious violations of the law that are not always victimless. Being aware of good investment practices can protect you against this type of fraud.

Photo of Attorney Phillip A. Geigle