Identifying a Ponzi Scheme

Protecting Investors from Ponzi Schemes, Pyramid Schemes, and other Investment Scams

A Ponzi scheme is a type of securities fraud that can be an expensive trap to fall into. These particular investment scams may be difficult to identify, often causing investors to incur substantial losses over long periods of time. Luckily, however, there are ways to identify a Ponzi scheme that can help make you a more well-informed investor.

Once you identify a Ponzi scheme, it’s important that you act immediately. Speak with an experienced investment fraud attorney to learn how you may recover your losses or report a Ponzi scheme to the FBI or SEC.

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What is a Ponzi scheme?

A Ponzi scheme is a type of investment fraud that typically promises high returns to investors. These particular scams are often disguised as new and easy investment opportunities. In reality, however, Ponzi schemes use the money from newer investors to pay high returns to older investors. For this reason Ponzi schemes are extremely unstable and inevitably collapse when there are no more new investors or when existing investors decide to cash out.

Ponzi schemes can often be extremely difficult to identify. One of the most famous Ponzi schemes, ran by Bernie Madoff, operated for 30 years before investors realized they were involved in a scam.

Investors should ensure that they have all the proper information about an opportunity before deciding to invest. Understanding how to properly identify a Ponzi scheme, and what to do once you have identified the scheme, can help ensure that you don’t lose your investment.

How to Identify a Ponzi Scheme

There are a few typical characteristics of Ponzi schemes that investors should be aware of. If you come across an investment with any of these warning signs, the investment may be a Ponzi scheme. Ponzi scheme red flags include:

  • Unclear Investments
    An investment that is unclear, or that you do not fully understand, should spark extra caution of behalf of the investor. Investors should be able to review written information about an investment, and should stay away from investments that are unclear or that an investment advisor cannot fully explain.
  • Promises of High, Consistent Returns
    All investments involve some degree of risk, and investments that seek high returns typically take even greater risks. Be skeptical of anyone who promises consistent, high returns on your investment, as those types of returns are difficult to consistently achieve in the marketplace.
  • Unregistered Investments
    According to the Securities Act of 1933, companies are required to register securities to help investors make informed investment decisions. When investing, beware of those investment opportunities that are not registered with federal or state regulators.
  • Unlicensed Advisers and Firms
    Investment professionals and firms are required to register with federal and state agencies. Before investing, be sure to ask for your adviser’s investment credentials. Be prepared to invest elsewhere if your adviser is unable or unwilling to provide that information.
  • Accounting Problems
    Be suspicious of any accounting errors in your statements, or if you have trouble withdrawing funds from the investment. These can be sign of fraudulent accounting and investment practices.

What To Do If You Spot A Ponzi Scheme: Reporting Investment Scams

Ponzi schemes are illegal, and operating a Ponzi scheme is a criminal offense. If you spot a Ponzi scheme you can speak to a lawyer about recovering you losses or you can report the investment scam to the Federal Bureau of Investigation (FBI) or the Securities and Exchange Commission (SEC).

Reporting a Ponzi scheme to the FBI

Reporting a Ponzi scheme to the FBI can be a rather straightforward and easy process. You can submit a tip about the scam online at or by phone to the FBI office. This tip can be made either anonymously, or you can provide your name and contact information in case more information is needed.

Speaking with an attorney before submitting a report can help you understand your rights and your options moving forward. Contact us today for more information on Ponzi scheme reporting.

Reporting a Ponzi Scheme to the SEC

Anyone can also report a Ponzi scheme to the Securities and Exchange Commission, as Ponzi schemes often violate SEC regulations. SEC complaints can be filed online on the SEC website, or by mail or fax.

SEC Whistleblower Program: Winning Awards for Ponzi Scheme Reporting

Those who report Ponzi schemes and other federal securities laws violations to the SEC are eligible to receive a whistleblower award through the SEC Whistleblower Program. This monetary award is given to those who provide original information that results in enforcement actions, and may constitute up to 30% of the total sanctions collected. These whistleblower tips may be submitted anonymously if the whistleblower is represented by a whistleblower attorney.

In order to report a Ponzi scheme and qualify for a monetary award, the whistleblower or their attorney must report the tip online through the SEC’s website, or by mail or fax. Any whistleblower wishing to qualify for this award should consult with an experienced lawyer. We can help you understand the whistleblower rules, and ensure that you are eligible for such an award. Working with an attorney can help secure consideration for the highest award possible, and make sure that you have all the information to properly report a Ponzi scheme.

The SEC Works to Identify Ponzi Schemes

According to a speech given by former SEC director, Andrew Ceresney, whistleblowers have “greatly aided” the SEC in identifying Ponzi schemes. Ceresney stated:

Whistleblowers have provided us with timely and valuable tips enabling the Commission to quickly halt these fraudulent schemes and protect investors from further harm. Whistleblowers also have helped focus us on false and misleading statements in offering memoranda or marketing materials, enabling us to act quickly and stop these investment frauds from attracting more investors.

Recently, about 15-20% of the SEC’s yearly whistleblower tips have been related to offering frauds such as Ponzi schemes. As a result, the SEC has brought charges against many Ponzi schemes in fiscal year 2018, including scams that raised millions, and even billions, of dollars from investors.

If you are interested in reporting a Ponzi scheme, qualifying for a whistleblower award, or recovering your investment losses, contact an experienced attorney. You may be able to help not only yourself, but the hundreds and thousands of other individuals who have fallen victim to Ponzi schemes.

Our Success in Investment Scam Cases

Since its inception, Gibbs Law Group has been on the forefront of investment fraud prosecution. We have recovered damages in cases alleging a variety of frauds and scams, including:

Medical Capital Litigation

This class action was brought on behalf of investors who suffered from an investment scam by four different financial entities. These entities disguised Medical Capital notes as reliable investments for their clients, which later turned out to be investments in a Ponzi Scheme. Gibbs Law Group served as Co-lead Council on this case and secured a settlement of $80 million on behalf of investors.

Towers Financial Corporation Noteholders Litigation

Gibbs Law Group served as liaison counsel in this class action brought against promoters and professionals who falsely marketed Towers Financial Corporation’s promissory notes. The Securities and Exchange Commission described this failed investment scam as the “largest Ponzi scheme in U.S. history.”

American Express Class Action Lawsuit

This class action as brought against American Express Financial Advisors who claimed to offer financial planning and advice tailored to client’s specific circumstances. In reality, these advisors provided “canned” financial planning, and gave clients general advice meant to direct them to specific mutual funds. Gibbs Law Group helped secure a $100 million settlement on behalf of American Express clients in this case.

Auction-Rate Securities Class Action Lawsuits

Gibbs Law Group served as co-lead counsel on a number of lawsuits against banks and broker-dealers who misrepresented the liquidity and risks of auction-rate securities. This misrepresentation resulted in the collapse of the auction rate securities market. The lawsuits helped spark the interest of state regulators, and many Wall Street firms eventually agreed to re-purchase auction rate securities from investors who bought directly from the banks.

H&R Block IRA Class Action Lawsuit

Gibbs Law Group served as co-lead counsel in a class action lawsuit against H&R Block. The case alleged that the company mislead customers in the sale of “Express IRAs.” Our law firm helped acquire a $19.4 million settlement to repay the fees charged under the Express IRA program.

Eileen Epstein Carney

Eileen works closely with investors in securities cases and has over a decade of experience in the legal world. She received her law degree from American University in 2005.

Dave Stein

David’s advocacy has generated major recoveries for consumers impacted by financial fraud. He was named to the Top 40 Under 40 by Daily Journal and a “Rising Star in Class Actions” by Law360.

Amanda Karl

Amanda is spearheading a securities lawsuit against NantHealth concerning fraudulent statements to investors about the success of its key product.

Our Financial Fraud Experience

Gibbs Law Group’s financial fraud and securities lawyers have more than two decades of experience prosecuting fraud. Our attorneys have successfully litigated against some of the largest companies in the United States, and we have recovered more than a billion dollars on our clients’ behalf.

We have fought some of the most complex cases brought under federal and state laws nationwide, and our attorneys have been recognized with numerous awards and honors for their accomplishments, including Top 100 Super Lawyers in Northern California, Top Plaintiff Lawyers in California, The Best Lawyers in America, and rated AV Preeminent (among the highest class of attorneys for professional ethics and legal skills).
titan of plaintiffs bar award
best law firm ranking
chambers USA leading firms award
daily journal top plaintiff lawyers award