Investigating Ponzi Schemes


You’ve heard news stories involving Ponzi schemes. Investment scams and Ponzi schemes are all too common, even thought consumers are warned about them regularly. Investors are lured in with promises of high returns. People in or nearing retirement find these investments enticing, especially as their retirement funds in the stock market have taken many hits in the last few years.

As I wrote in my book Expert Fraud Investigation: A Step-by-Step Guide, investors are becoming victims of these scams despite the proliferation of information available about phony investment schemes and the dire warnings given regularly by news reporters.  Perpetrators of investment schemes dream up stories explaining their unusually high rates of return on money, and get high net worth people to invest with them. Often these people are investing their entire savings with scammers.

These high investment returns typically amount to guarantees in excess of 10% per year. Often they are to the point of ridiculous, offering a 30% or 40% annual return. As a fraud investigator, it is clear to me that these offerings are bogus, because any investment that legitimately generated such returns would not be much of a secret to the rest of the world. But consumers, who are often eager to protect and grow their nest eggs, are all-too-willing to believe that this investment is the answer to their money problems.

These investment schemes are not usually terribly elaborate, but the stories about them are. In typical investment schemes, there is absolutely nothing legitimate about what they are offering. There is often a story about a wonderful investment vehicle, often with ground-breaking technology, a secret recipe, access to a niche market, or some other unusual-sounding detail. This cryptic detail allows the investment vehicle to create such high returns for investors, or so the story goes. The unique characteristic that will supposedly earn the investors so much money is either nonexistent or does not have the significance that those selling the investment want you to believe. The people making the offering simply want to steal the investors’ money and hope that they will buy into the scheme before they discover the hook is all a lie.

When Ponzi schemes are detected, a forensic accountant can help find where the money went. While fraudsters will often spend much of the money on living a lifestyle, they may have some of the money invested in assets like real estate, or in secret bank accounts overseas. A forensic examination by a fraud investigator is aimed at tracking down any assets that may be recovered for the benefit of those scammed.

A detailed tracing of the funds through known bank and brokerage accounts can turn up details that may point to hidden assets.  This process can be a massive undertaking as Ponzi scammers may often use many bank and brokerage accounts, and do a high volume of smaller transactions in order to conceal the source and use of funds. A forensic accountant with the technological tools and requisite fraud investigation experience can unravel this tangled web of financial dealings.

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