Ponzi and pyramid schemes are both examples of securities fraud

Pyramid schemes are often discussed as if they are a thing of the past, which is not the case. Pyramid schemes are often confused with Ponzi schemes. While similar and both can constitute forms of securities fraud, understanding the difference between these two schemes can help victims determine how to pursue possible compensation for their losses.

In New York, pyramid schemes are called chain-distribution schemes, which are illegal under state law. These schemes require investors to recruit even more investors -- many schemes request recruiting 10 more people -- below them, creating a downline of investors that ultimately looks like a pyramid. When people invest in the scheme, the money goes to investors higher up the chain, meaning those at the bottom never receive returns on their investments. Since continually recruiting more and more people is impossible, these schemes are unsustainable and rarely last long.

The right representation in Puerto Rico matters

Laws differ from state to state, and how a claim is handled in New York might be quite different than how it might be treated elsewhere. This is why securing the guidance of someone who understands the laws applicable to a specific state or US Territory where the claim will be litigated is essential. When confrounted with securities litigation claims, finding the right representation in Puerto Rico is especially important.

Securities litigation is a complicated area of law, particularly because of the complexity of FINRA and SEC Rules and regulations as well as federal and state securities laws. Although an investor may lose money that does not necessarily mean that the investor has a legitimate claim. A thorough understanding the standards, rules and laws applicable to the securities industry is critical to evaluating whether you may have a legitimate claim to recover investment losses.

Some offenses may appear similar or even identical, but they are not. Understanding the nature of different offenses may help a victim of a securities violation better understand his or her situation.

5 Steps to avoid investment scams

Scammers operate at all hours of the day; they don't take vacations. Because of this, you always need to be skeptical of who assists you and your investment strategy. Also, be sure to secure your personal and financial information.

There are five necessary things you can do to make sure the broker, advisor, firm, etc. that you are working with is legit. Though they are essential, these guidelines are often overlooked.

Reduce chances of broker misconduct with careful vetting

When someone is looking for a financial advisor, it is often because he or she wants sound advice from a trustworthy source. Investing is inherently a risk, but an investor does not want the risk to involve being a victim of broker misconduct. New York investors may wonder how to know if a financial advisor is trustworthy.

Whether one is looking for someone to help with long-term income planning, basic financial advice or investment services, finding someone with experience and integrity is crucial. An advisor may have many credentials, but an investor should do some homework to learn which are legitimate and which may be for appearances only, such as mail-order certifications. An investor can look for credentials from reputable organizations that require passing an exam and continuing education.

Investment fraud victims lost $576,000

Volunteering for and donating to charities is an excellent way for people in New York to give back and help others. When a situation arises in which it is possible to help a charity while also receiving a return on investment, it might feel like the perfect opportunity. Unfortunately, at least two people who thought they were doing just that say never saw any type of return. Instead, they ended up being victims of investment fraud.

An out-of-state financial adviser allegedly told some of his clients that he worked with a charity that involved several different celebrities. These include Taylor Swift and Bill Gates, among others. According to the two known victims who invested in the scam, the adviser promised that they would receive a 20% return for investing in the charity. He also leveraged his nonexistent relationships with celebrities to encourage his clients to invest, and even claimed that he and Swift were engaged. No such charity or celebrity relationships existed.

Protecting older adults from sweetheart scammers

Adults can become more vulnerable as they age, especially as their loved ones and close friends begin to pass away. These circumstances can often make them feel lonely, defenseless and sad during this tough transition. Unfortunately, this could subject them to what some call the "sweetheart scam," where older adults can be tricked out of money through the ruse of an online stranger's love and attention.

What is a sweetheart scammer?

Rochester based investment manager scams hundreds in Ponzi scheme

Perry Santillo, a Rochester-based investment banker, admitted to scamming hundreds of investors in a national Ponzi scheme.

According to court papers, Santillo and his business partner gained close to $115.5 million from close to 1000 investors from 2012-2018. He reportedly still owes them $71 million in principal.

Securities fraud and abuses still a problem for investors

The security industry involves a number of different forms of investments, such as mutual funds, bonds, stocks and much more. While these types of investments can be quite different, as securities they all involve investments made by entities and individuals with an expectation of yielding profits. Federal laws are in place to protect people and their investments from abuses, but unfortunately securities fraud and other abuses still take place.

New York companies that issue securities are required to disclose information that affects the value of investments. However, if a company files documentation that does not accurately reflect those values, makes inaccurate financial claims or engages in improper accounting practices, then it may have committed fraud. Investors who are misled by this type of fraud often sustain significant financial losses.

Can you identify unsuitable investments?

An unexpected investment loss can be upsetting, and your initial reaction may be to place the blame entirely on yourself. However, you may want to consider that decisions made by an adviser or broker could be responsible for the loss. Even if you had what you believed to be a strong and trusted relationship, it is possible that a broker may have made unsuitable investments.

Not all losses are due to unsuitable investments or misbehaving brokers, but some are. You should ask yourself some important questions if you suspect that your losses were caused by more than the standard risk of investing. For example, were you misled about the risks associated with your investments? Did your broker or adviser fail to even disclose any of the risks?

Affinity fraud: Insidious, damaging and not uncommon

It’s natural to want to trust someone you share a community with. Maybe it’s another member of a tight-knit professional organization, or someone who goes to the same place of worship that you frequent. You can identify with them – so they can’t be a bad person, right?

Unfortunately some people take advantage of this natural trustworthiness, using the status of this community to defraud its members. And this tactic, called affinity fraud, happens more frequently than many people realize.

Contact Timothy J. Dennin

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