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What happens when you get ripped off in a Ponzi scheme?

On Behalf of | Jan 25, 2023 | Consumer Protection

Investment fraud can prove devastating for businesses or specific individuals. You might also be an individual who hired a specific financial professional or bought into a specific fund because of the promise of high returns on your investment.

Sometimes, professionals really are savvy enough to beat the market and return better odds than average for their clients. Other times, the individuals claiming to produce shocking returns on investments aren’t following the law. Instead, they operate a Ponzi scheme, stealing from clients until everything falls apart.

What are Ponzi schemes?

Ponzi schemes are a way for unscrupulous financial professionals to convince people they have achieved success. Instead of investing resources and paying dividends as they should, they use capital paid by new clients to mimic high returns for existing clients.

Eventually, such practices catch up with the financial professionals involved, often resulting in the entire Ponzi scheme crumbling. What protection do you have as someone who bought into a Ponzi scheme and potentially lost thousands of dollars?

Consumer fraud laws protect you

One of the first steps an individual should take when they believe they have lost money to a Ponzi scheme is to notify law enforcement or regulatory authorities. An investigation into the business operations of the individual or company that lost your investment funds may quickly substantiate your allegations of fraud.

At that point, the people involved will likely face prosecution, likely at the federal level. Of course, their criminal consequences are a cold comfort when you have lost a substantial amount of money. Thankfully, consumer fraud protection laws can potentially help you.

You may be able to bring a lawsuit against the person running the scheme and any assets they still have. There are often third parties, such as affiliated financial institutions or an advisor, that could have some liability for a Ponzi scheme scenario.

It can be difficult for the average person to understand what options they have following a major loss related to a Ponzi scheme. Partnering with an attorney familiar with consumer protection law is often crucial for those who want to recoup some of their losses. The right support could potentially help you identify parties that have assets and may also have some responsibility for the situation.

Learning more about consumer fraud laws and Ponzi schemes can help those hoping to recover some of what they lost due to the investment decisions of a professional they trusted.

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