Many of us remember the Ponzi scheme operated by Bernie Madoff wherein thousands of investors lost billions over the period the scheme was operated. Still, do you know what a Ponzi scheme really is and why the authorities will duly prosecute those who perpetrate these schemes?
What is a Ponzi scheme?
A Ponzi scheme presents itself as an investment opportunity. The perpetrator of the scheme attracts investors by promising them high returns from their low-risk investment. However, instead of investing these funds the perpetrators of the scheme use these funds to pay those higher up in the scheme and they generally keep some of the funds for their own personal gain.
Eventually, it becomes more difficult to attract new investors to the scheme or many existing investors will leave the scheme by cashing out, causing the scheme to go under. By this point, the remaining investors are left with nothing to show for their investment and the perpetrators of the scheme have walked away with a significant amount of the investors’ money.
White-collar crimes will be prosecuted
Ponzi schemes are a type of white-collar crime. White-collar crimes are generally financial crimes such as fraud, embezzlement and identity theft.
You may think that these financial crimes do not really hurt anyone significantly, but this is not so. People who have been subjected to fraud, embezzlement, identity theft and other white-collar crimes can lose thousands. White-collar crimes are not victimless crimes, and they will be prosecuted diligently by the authorities.