Federal White Collar Crimes: Ponzi Scheme and Pyramid Scheme

If you have been charged with a white collar crime in Oklahoma, your offense may be tried in federal court by a U.S. District Attorney rather than in state court.  Federal crimes are often prosecuted with the backing of investigation by specialized government agencies including the Internal Revenue Service (IRS), Federal Bureau of Investigation (FBI), the Securities and Exchange Commission (SEC), and others.  

For those whose alleged crimes are charged as federal offenses, it is important to find an Oklahoma City white collar crime lawyer who is an experienced federal defense attorney. The FBI website features a section dedicated to federal white collar crimes.  Within the white collar crimes section of the website, the FBI briefly defines crimes such as fraud, embezzlement, money laundering, and anti-trust violations.  

Fraud, in its briefest sense, is simply misrepresentation for the purpose of profit.  However, there are virtually infinite ways in which this crime manifests itself:  insurance, bank, corporate, health care, and mortgage fraud . . . the list is almost endless.  

Common Types of Fraud

Two common fraud schemes described by the FBI include Ponzi schemes and pyramid schemes. The Ponzi scheme is named for Charles Ponzi, a con artist in the early 20th century who promised investors a return of double their initial investment in only 90 days.  In a Ponzi scheme, the perpetrator of the scheme pays returns to early investors out of the investments of later investors.  The scheme collapses when either the perpetrator absconds with the "investments," or when there are not enough new investors to continue to fund the scheme.  

Though Charles Ponzi was not the first to perpetrate such a scheme, his name became synonymous with this type of fraud because of the magnitude of his investment scheme.  When Ponzi's scheme fell apart in 1920, his investors lost $20 million dollars--the modern equivalent of $225 million.  He also brought down five banks in the wake of his fraud.

The biggest Ponzi scheme in recent history was perpetrated by Bernie Madoff.  In 2008, Madoff was arrested for securities fraud.  It was later determined that losses from Madoff's investment scheme totaled $65 million.  In June 2009, he was sentenced to 150 years in federal prison. Similar to the Ponzi scheme is a type of fraud called a pyramid scheme.

Pyramid or Ponzi Schemes

The pyramid scheme, like the Ponzi scheme, pays returns to early investors from the investments of subsequent investors.  However, a pyramid scheme generally involves the sale of some product or franchise.  However, little to no money is earned from the sale of the products; rather, money is only earned when a member enrolls additional members into the program.  

A pyramid scheme is a non-sustainable business model.  Just as a Ponzi scheme falls apart when there are no more investors, a pyramid scheme collapses when no one else buys into the business model. Pyramid schemes are often referred to as franchise fraud, and consumers are cautioned to be wary of multi-level marketing (MLM) businesses, not all of which are legitimate.  

Pyramid schemes are generally investigated by the FBI or the Federal Trade Commission (FTC). It is important for investors to always do their research before investing in any business, franchise, or other investment opportunity.  As the adage goes, "If it sounds too good to be true, it probably is."  

Being caught up in a fraudulent scheme can cause you to lose your investments, and it may also lead to white collar criminal charges if it is determined that you were a part of bilking others out of their assets.  Before offering investment opportunities to another, it is critical that you understand the legal issues regarding investments to ensure that you do not inadvertently commit a crime.  

Charged With Fraud or Embezzlement?

If you have been charged with a crime, or if you have been accused of perpetuating a Ponzi scheme or pyramid scheme, speak with a federal white collar crime lawyer as soon as possible. Our firm's attorneys are experienced and have successfully represented clients accused of investment fraud, mortgage, and Medicare fraud, identity theft, and other white collar offenses in Oklahoma City.