Wooden gavel and books on wooden tableRecently, a Utah man was under scrutiny after he was arrested for something known as a Ponzi Scheme. He claimed that the business he was conducted was completely legal but is now facing twenty-three felonies after nearly 700 people were cheated out of $72 million. But what went behind the illegal actions of this Utah man and the businesses he was conducting? Dee Randall was found to be operating several Utah businesses, including Horizon Mortgage & Investment. He was advertising that he could protect many people’s retirement funds through investments in real estate, auto leases, and insurance products. An investigation was conducted after he decided that he was going to file for bankruptcy.

How Ponzi Schemes Got Their Name

Ponzi schemes are named after Charles Ponzi. Ponzi duped thousands of New England residents into investing in a postage stamp speculation scheme. This took place in the 1920s and disrupted the flow of many people’s lives as they fell victim to the crime. Ponzi promised people that he could provide a 50% return in only 90 days when the annual interest rate for bank accounts was only five percent. He supported his scheme well with international mail coupons, but quickly switched to incoming funds from new investors to support his scheme.

The Truth Behind Ponzi Schemes

Ponzi schemes, in a nutshell, are fraudulent investing scams that promise high rates of return with little risk to investors. Clients are promised large profits that usually cannot be completed, which is why they are a scheme in the first place and are illegal by law. Many of these returns are advertised as bringing in “high returns with little or no risk.” Those who run these frauds will promise payments and give the false appearance that investors are profiting from a legitimate business, when this is not true. However, Ponzi schemes require a consistent flow of money from new investors to continue. When new investors will not give their money or decide to cash out, Ponzi schemes will ultimately collapse.

What are some of the “red flags” that lead investors to believe that they are becoming involved in a Ponzi scheme?

• Investment Returns: If you have been promised investment returns with little or no risk, you may be involved in a scheme. You should be suspicious of any guaranteed investment opportunity, or one that has been advertised as such.
• Overly Consistent Returns: Investment values can change over time. You should be suspicious of an investment that continues to generate regular, positive returns over time.
• Unregistered Investments: These schemes will involve investments that were not registered with the SEC or other state regulators. Registration is important and should never be avoided.
• Unlicensed Sellers: Firms should be licensed or registered. If they are not, they may be a Ponzi scheme.
• Secretive Strategies: You should always avoid investments that you do not understand.
• Paperwork Issues: You are permitted to review and understand information about an investment in writing. Account statement errors may be a sign that something is wrong.
• Difficult Payments: If you do not receive a payment, you could be part of a scheme and should be aware.

Ponzi schemes are a very serious type of fraud that should always be avoided at any cost. However, each year people will fall victim to Ponzi schemes and wonder what options they have. Talk to an attorney today about your options in your time of need.