Ponzi Fraud: Defense for Accusations of Investment Scams
What is a Ponzi Scheme?
After the publicity surrounding Bernie Madoff and other high profile cases, the federal government has been aggressive at prosecuting defendants involved in alleged Ponzi schemes. Numerous federal agencies become involved in Ponzi scheme actions and defendants can face multiple federal criminal charges and civil actions. Financial institutions, investment advisors, and even accountants and lawyers have been charged for their alleged involvement in Ponzi schemes, and many defendants face lengthy prison sentences and the seizure of assets.
Although federal prosecutors often seek harsh penalties when accusations of a Ponzi scheme arise, it is possible to avoid conviction or to negotiate a plea agreement to resolve Ponzi fraud charges.
A Ponzi scheme lawyer should be consulted as soon as possible if you are under an investigation for an alleged scheme.
Criminal Investigations for a Ponzi Scheme
Ponzi schemes may trigger the attention of myriad state and federal agencies, each of whom can bring actions against those allegedly involved in the plan to defraud consumers. Agencies and officials that may pursue legal action when a Ponzi scheme is suspected include:
- The Federal Trade Commission (FTC), which investigates consumer fraud cases.
- The Securities and Exchange Commission (SEC), which investigates securities fraud.
- The Financial Fraud Task Force, which is a coalition including 94 U.S. Attorneys Offices as well as 20 federal agencies charged with coordinating efforts to investigate and prosecute “significant” financial crimes.
- The Internal Revenue Service if the criminal scheme involved tax fraud.
- State attorney generals and local prosecutors, who may pursue fraud charges.
- A U.S. Attorney, who may pursue fraud charges
A criminal investigation may be triggered if federal or state authorities believe you are selling unregistered investments, or that unlicensed sellers are selling investment products. The government pursues charges not only for Ponzi schemes, but also for pyramid schemes. In many situations, legitimate multi-level marketing companies are falsely accused of involvement in pyramid schemes and face serious consequences including felony charges.
If you are under investigation or any federal agency is looking into your investment dealings, remember and protect your rights. You have the right to remain silent, and you have the right to be represented by a defense lawyer.
Contact an experienced Ponzi scheme attorney as soon as possible before answering any questions, as you also have the right not to incriminate yourself.
Criminal Charges for a Ponzi Scheme
The federal government may bring myriad charges against those who it believes were involved in a Ponzi scheme. You could be charged with:
- Mail or wire fraud, if the government believes you used the postal service, wire, radio, or television communication in an attempt to further a scheme to defraud or a scheme based on false promises or material misrepresentations.
- Securities fraud offenses, which can include violations of the Securities Exchange Act of 1934, the Securities Exchange Act of 1933, the Investment Advisors Act of 1940, the Investment Company Act of 1940, or the Trust Indenture Act of 1939.
- Securities and commodities fraud, which is defined as using false or fraudulent pretenses, misrepresentations or promises to obtain money or property in connection with the sale of a commodity for future delivery; an option on a commodity; or any securities registered or required to file reports under the Securities and Exchange Act of 1934.
In addition to criminal prosecutions against companies and executives, Ponzi schemes can also trigger lawsuits by the FTC, SEC and other government agencies. Monetary remedies, injunctions or other equitable remedies may result from litigation. A series of cases established rules for litigation against defendants accused of Ponzi or pyramid schemes. For example:
In SEC v. W.J. Howey Company, the Supreme Court established a four-point test to determine if something was an investment contract. An investment contract must:
- Require an investment of money
- Given because of an expectation that profits will arise
- The profits must be expected to arise from a common enterprise
- The common enterprise must depend upon the efforts of a third party
In FTC vs. Koscot Interplanetary, the FTC created a four part test to determine if an investment opportunity was a pyramid scheme. To be considered a pyramid scheme:
- The participant must be required to pay money to the company
- The participant must receive a right to sell a service or product for the money
- The participant must receive compensation in order to recruit others to pay money to sell products.
- The compensation received by the participants must be based on recruiting other participants and not related to selling services or products to an end user.
Ponzi schemes and pyramid schemes are a heavily litigated area of law. Defendants accused of orchestrating a scheme should consult with a Ponzi scheme lawyer as soon as possible for assistance.
A Ponzi Defense Lawyer in NY Can Help You
To learn more about Ponzi fraud and your options for defenses, contact a Ponzi scheme attorney today. Arkady Bukh can assist you in negotiating a plea agreement or responding to litigation or criminal prosecution.
