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Six Telltale Signs of a Ponzi Scheme Fraud

If you search for the news on the internet, you’re treated to see a new one mentioned daily – Ponzi schemes. You might not even realize you’re a victim already of one.

They seem so apparent, and yet even decades after their conception, thousands of people fall prey to this kind of fraud each year.

Undoubtedly, the Ponzi scheme organized by Bernie Madoff raised public consciousness of such financial scandals. One would think that should a global story would turn the tide and promote greater awareness of investment fraud.

But Ponzi schemes — or investment fraud that arises when a broker pays existing investors with money from new investors — come in all shapes and sizes. They can influence everyone, from young professionals to retirees. Ponzi schemes are named after Charles Ponzi, who defrauded thousands of people in New England in the 1920s with a postage stamp speculation scam.

Ponzi schemes can run for months, years, or even decades. Simply because they have no legitimate income, Ponzi schemes will ultimately come to light without a continuous flow of new cash from new investors.

Ponzi schemes often share many of the same elements. Here are some signs to help you realize that you might have invested in a Ponzi scheme:

  1. The promise of high returns with little-to-no risk
    With every investment you make, there is a certain level of uncertainty and risk. Typically, the higher the return, the higher the risk. Investors should be wary of “guarantees” and no-risk investment opportunities.
  2. Unregistered investments: Not all investments and hedge funds are required to be registered with the U.S. Securities Exchange Commission ( the SEC) or state regulators, but unlisted investment funds can serve as a red flag for a potential Ponzi scheme. Why? Because SEC registration gives investors access to vital information about the investment company’s products, services, financial stability, and management practices. Investment companies with nothing to hide will have no qualms registering with the SEC.
  3. Unlicensed sellers: Although not all funds have to be registered with the SEC, the investment broker or professional selling the fund — and the firm he or she works for — has to be licensed and registered with both the SEC and state regulators. Many Ponzi schemes are run by unlicensed brokers or firms that have not registered with the SEC. 
  4. Consistent high returns: One serious red flag when it comes to investments is overly consistent returns. With most investments, returns fluctuate just like the market, especially those that end up reaping the most rewards. Remain vigilant when monitoring returns, and be wary of constant high yields. 
  5. Trouble getting paid: If the investor in question often tries to convince you to “rollover” your investment returns — and then promises even more lucrative returns on the rollover, it’s a sign of a fraudulent investment. 
  6. Overly complicated or private investment strategies: If the investment professional seems very good at confusing you or not answering your questions directly, it’s another sign of a Ponzi scheme. Never invest in something you don’t fully understand. Another Ponzi scheme character is not being allowed to view the investment information or paperwork behind the fund. If there are consistent errors in the paperwork, the fund needs to be scrutinized more.

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