Ponzi Scheme

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A “Ponzi Scheme” is an investment fraud that involves the payment of alleged returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often seek new investors by showing potential in their company; they entice investors to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legal investment activity. The system is destined to collapse because the earnings are less than the payments to investors. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a…show more content…
Second, the scheme will begin to collapse under its own weight as the investment slows and the promoter starts having problems paying the promised returns, the higher the return on investment the greater is the risk of the Ponzi scheme collapsing. Such crises often trigger panics, as more people start asking for their money. Third, the external market forces, such as a sharp decline in the economy, may cause many investors to withdraw part or all of their funds; not necessarily due to loss of confidence in the investment, but simply due to the market meltdown. The SEC investigates and prosecutes many Ponzi scheme cases each year both to prevent new victims from being harmed and to maximize the recovery of assets to investors. During 2009, the SEC filed 60 enforcement actions involving Ponzi schemes or Ponzi-like payments. Two recent popular Ponzi schemes are, first, Robert Allen Stanford and his companies with allegedly conducting an $8 billion Ponzi scheme. And second, Bernard L. Madoff, who orchestrated a multi-billion dollar Ponzi scheme that swindled money from thousands of investors. Robert Allen Stanford was a prominent financier, philanthropist, and sponsor of professional sports who has been charged with fraud. In early 2009, Stanford became the subject of several fraud investigations, and on February 17, 2009, was charged by the U.S. Securities and Exchange Commission with fraud and multiple violations of U.S. securities laws for

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