A Ponzi scheme occurs when an individual seeks investment in a fraudulent or nonexistent project or some other fraudulent vehicle to make money. Original investors are actually repaid with money that is raised from secondary investors, and the scheme generally dies out when it is no longer possible to find anyone to provide cash. Let’s look at what types of penalties an individual could face if convicted of operating a Ponzi scheme.
Multiple Charges Could Be Pending
As there are many elements to a Ponzi scheme, there are many charges that an individual may face. For instance, it may be possible to be charged with fraud as you are materially misrepresenting yourself to investors or others who may have given you money. A charge of bank or mortgage fraud may also be forthcoming if you lied on a loan or mortgage application.
If you tried to use government loans to start your scheme or finance it in any way, federal charges could be levied in addition to state charges. This may also be true if your Ponzi scheme involved investors or banks in multiple states. The FBI may also get involved if you have multiple people helping you with your scheme or there were multiple investors who were defrauded.
How to Defend Yourself Against the Charge
If you are charged with committing a Ponzi scheme, you may argue that there was no intent to defraud anyone. This may be done by showing that there was actually an investment opportunity that was to return capital to investors. For instance, if you offered a return to those who invested in a building project, you may be able to show details of that project.
Assuming that you can show that the project died because of circumstances beyond your control, it may be possible to have the charge dropped. The same may be true if you are able to show that you put investor’s money into a legitimate account that simply stopped paying out as much as it did in the past. For instance, a company with a large dividend may offer larger returns than usual.
However, that is not illegal, and it is common for companies offering such dividends to cease operating at some point. The dividend is a sign of poor fiscal health or other signs of decay within the company. Ultimately, as long as you represent yourself accurately to investors, it is on them to determine if an investment is worth risking their capital.
What Penalties Could You Face for Engaging in a Ponzi Scheme?
If you engage in a Ponzi scheme, you could face a variety of penalties such as jail time, a fine and restitution. The extent of your jail sentence may depend on the size and scope of the fraud. In most cases, this is determined by how much money you stole or otherwise defrauded people and banks out of.
It is possible that you will spend the rest of your life in jail depending on your age and health. If you are out released from prison, you may be barred from engaging in most types of financial transactions such as being a mortgage or stock broker. You may also have a hard time getting loans or other credit in the future.
Your attorney may be able to explain in better detail the specific penalties that you face as well as how to plea your case. Depending on the facts in the case and your role in the scheme, it is possible that you will be given a plea deal in exchange for your cooperation. While you may still go to jail, the sentence will generally be shorter, and it may be possible to spend you time at a minimum security facility.
A charge that you operated a Ponzi scheme is one that you should not take lightly. Instead, you should hire an attorney who can help you defend yourself in court and clear your name. At the very least, your legal counsel will help you obtain as favorable a sentence as possible depending on the facts of your case.