Are you invested in a Ponzi scheme or other fraud? Now is a good time to check.

By: Thomas Zeichman May 5, 2020 6:45 am

By: Jeffrey Lynne, Esq. and Laura Stinson, University of Miami School of Law (2L)
May 5, 2020 6:45 am

Are you invested in a Ponzi scheme or other fraud? Now is a good time to check.

During economic booms individuals often create a Ponzi or other scheme to lure investors who are looking for returns. However, a downward turn in the economy often exposes these schemes as those behind the scheme unable to bring in new investors to fund prior investor payments or investors demand a return of investment at a higher rate. The largest and most high-profile scam perpetrated by Bernard Madoff was discover in 2008 as the U.S. and the world entered the Great Recession. Investors who previously accrued “returns” attempted to withdraw funds only to find out they had invested in a scam. As the U.S. economy experiences a slow down due to the Corona Virus, it is likely many scams will be exposed. Unfortunately, many of these schemes take place in South Florida, including Palm Beach, Broward, and Miami-Dade. Below are clues to look for and steps to consider.

Ponzi and Other Scheme Clues

  • Guaranteed or fixed returns regardless of market conditions: Many investors are promised “safe” or “low risk” investments which promise a specific rate of return regardless of how the economy is doing. These schemes may come in the form of promissory notes, purchases of settlement proceeds at a discount with purported entire settlement paid over time, or steady payments from purported business activities. Alternatively, Madoff’s pitch to investors claimed a proprietary asset allocation invested in the stock market.
  • Non-Responsive Company: Did the company you are invested in stop returning emails or phone calls? It is possible that companies have legitimate reasons for delayed responses given social distancing guidelines and remote work; however, delayed responses from a previously responsive company may reflect other problems.
  • Friends or relatives invested in the scheme raise issues: Historically, Ponzi and other schemes grow out of communities because of word of mouth or a targeted approach by those running the scheme. For instance, many individuals invested in Madoff learned of it in their country club (Madoff’s secretary resided in one prominent country club in Boca Raton) and others learned of it through their religious congregation. Other schemes have followed a similar pattern. It is possible you may learn of problems others are experiencing with their investment account that could provide clues that a scheme exists.

Next Steps

  • Identify and Organize Documents. Locate and assemble documents connected to the investment including, among other things: (i) proof of payments made by and to you; (ii) initial investment or loan documents (if promissory notes or similar were used); and (iii) correspondence and statements regarding your accounts.
  • Analyze past performance of the investment. Is there a pattern? Are their details that you or your professionals notice regarding the performance of your investment that, upon closer inspection, do not make sense such as consistent performance even when other assets surged or plummeted?
  • Consider how and when to communicate. In many instances those who perpetuate schemes attempt to flee with assets shortly before the complete collapse. When communicating it is important to balance the need for information against the risk that the potential source of funds could flee to before assets are seized or subject to a Court’s jurisdiction.

Disclaimer

The information provided on this website is for informational purposes only and is intended as a public service. Any questions of a legal nature should be directed to an attorney, and the information on this website is not intended to replace legal advice from a licensed attorney in your state. By using this website, you acknowledge that you may not rely upon or refer to the contents as being legal advice or guidance provided by BMU Law, without its prior written consent.

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