Austin Business Lawyer

Ponzi Schemes in Business

One of the largest financial frauds committed was recently exposed. This massive fraud was carried out against investors and organizations with varying backgrounds. The man who orchestrated the fraud is Bernard Madoff. This man was able to defraud investors of over $55 billion dollars in an elaborate investment fraud. Many individuals lost everything and even some charities fail victim to this scheme. The fraud that he carried out is being described as a large scale ponzi scheme.

Ponzi schemes are a con that is carried out by an individual or a group that promises large returns for investors. The ponzi scheme rewards early participants who invest money more heavily. When new individuals are brought into the scheme, their money is given to the people before them and at the top of the chain. This creates a return for the earlier investors that is economically attractive. This early return will cause early investors to seek out other individuals to join the fraudulent investment.

Because of the success of initial investments, many times family or friends are brought in to the scam by early investors because they think they will be helping the other individuals out. Most ponzi schemes have a hall mark of promising consistent, no risk, high returns on an investment. It is important to understand that there is no such thing as a no risk, high return investment.

Ponzi schemes are destined to fail. This happens when the scam is failing to bring in new investors in the later stages. The scam is unable to support the weight of its own structure and then fails.

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For more information, please contact Austin business lawyer Slater, Kennon, & Jameson, LLP today at 512-472-2431.