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What is a Ponzi scheme?

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A Ponzi scheme is a type of securities fraud that can significantly harm unsuspecting investors. Potential investors should know what to watch for and the legal resources available to them to keep them protected from Ponzi schemes and other types of securities fraud.

Everything to know about Ponzi schemes

The basic idea behind a Ponzi scheme is that the perpetrator promises high financial returns and dividends that would not otherwise be available through traditional investments. With this promise, investors will turn over funds to the perpetrator for investment but instead of investing the funds, the perpetrator pays out those funds to earlier investors. The funds turned over to invest by subsequent investors provides the returns for earlier investors. Because there is no true investment, once there are no new investors, the Ponzi scheme will typically fall apart leaving victims of later investors and maybe others.

How to avoid Ponzi schemes

To try and avoid Ponzi schemes, potential investors should be cautious of any investment opportunity that makes seemingly exaggerated earnings claims that may seem too good to be true. It is also wise to exercise due diligence when selecting investments and individuals to invest with. Doing homework prior to investing is always wise. It is also a good idea to consult and unbiased party prior to investing.

Ponzi schemes are a type of financial fraud and victims of it may be able to pursue compensation for their damages through a claim for damages. Victims of Ponzi schemes can see their entire life savings or retirement wiped out which is why they should be familiar with the legal remedies available to them.