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How are Ponzi schemes defined?

White collar crimes can include Ponzi schemes. This doesn't come as a surprise but there is still factual information that you can use to defend yourself if you are accused of this.

A Ponzi scheme is an illegal business practice that uses new investor money to cover older investments so that it seems that the investment firm is doing better than it actually is. The money paid is actually a distribution of capital, not additional income.

The money is being circulated so that it seems like the firm is doing well, when, in actuality, the firm has no firm footing. There is usually no legitimate investments being made at any time. The officers of the company are using the money to fund extravagant life styles and often transfer the money to offshore accounts.

The Better Business Bureau has come out as saying that Ponzi schemes are the biggest single fraud threat to the American investor. Because of the real estate boom in the 1980s and the stock market boom of the 1990s, there has been a huge uptick in the number of Ponzi schemes on the scene in the 2000s.

Every single top fraud recently has been a Ponzi scheme. This means that Internet scams, high-tech and telemarketing scams along with abusive sales practices are all being investigated as Ponzi schemes.

The similarity between a Ponzi scheme and an illegal pyramid scheme is that they both use new money to pay off old investors. While not all pyramid schemes are considered illegal, they are if the new funds generated by investors is used to pay old investors.

This in no way means that your successful business is a Ponzi scheme. If you believe that you are going to be charged with this type of crime, you not only need information but you may need legal representation.

Source: Association of Certified Fraud Examiners, Inc., "Ponzi Schemes," accessed April. 29, 2015

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