The traditional Ponzi scheme involves an investment promoter paying out old investors by bringing in new investors instead of actually generating new money with the funds invested. Bernie Madoff's Ponzi scheme is perhaps the best-known example. However, many other fraudsters also pursue Ponzi schemes and similar types of fraud for their own personal enrichment at the expense of investors. Alternative investments, private placements and hedge funds are often the vehicles of choice for Ponzi scheme promoters.
Unfortunately, a common way for a Ponzi scheme to get exposed is that the promotor runs out of money to pay investors, thereby leaving little recourse to recover from the primary wrongdoer. However, our financial system includes many checks and balances designed to prevent Ponzi schemes and they usually cannot occur without some other third-party, such as accountants, auditors, broker-dealers, investment advisors, or fund administrators either conspiring with the fraudster or simply negligently failing to do their job.
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If you are the victim of a Ponzi scheme, it is in your interest to work with an experienced attorney who can provide you with the advice you need to reach a resolution that reflects your interests. The first step is to meet with a lawyer so you can learn more about your legal options.