Federal authorities arrested a Gainesville, Florida man for allegedly creating a Ponzi scheme and stealing approximately $30 million from people who thought they were investing their money with the suspect in foreign exchange markets, according to an article on News4Jax.com. According to the article, the suspect solicited funds from people in Florida that he would purportedly use to invest in foreign currency markets and return up to 10% per month to the investors. He is charged with taking the money and spending the majority of it rather than investing it for the investors. The suspect is expected to be charged with wire fraud in federal court.
The term “Ponzi scheme” has become more mainstream ever since the highly publicized Berni Madoff case, and the federal government is usually very interested in these Ponzi schemes as a result. It generally refers to a scheme where someone or a group of people will pretend to have the ability, and intention, to invest large amounts of money in a great investment that will produce incredible returns. Ten percent per month would certainly qualify as incredible returns.
However, in a true Ponzi scheme, the person does not invest the money or only invests a portion of it. On the contrary, when the so-called investors are expecting returns on their investments or principal payments, the suspect will use the money from new investors to pay what appears to be profits and/or principal back to the old investors. This does two things to further the scheme. It satisfies the investors who are seeing what they believe is proof of their great investment. It also creates good publicity for the suspect which attracts new investors whose money can be used to pay the old investors. One problem with the Ponzi scheme is that it constantly requires new investors to pay off old investors. People want to see their profits, they want advances, they need their money back to pay for an emergency, and the suspect needs to come up with that money from some source. And the bigger the scheme gets, the harder it is to manage. In any case, when someone gets charged with being involved in a Ponzi scheme, it is often a federal case and very serious, particularly when the suspect does not have a lot of the money left to return to the victims.