Whistleblower Ponzi Scheme

Ponzi schemes are some of the most pernicious frauds around. Scam artists prey on unsuspecting investors who don’t realize that the “great new investment” they’re being sold is simply a plan to steal their money. Ponzi schemes take many forms including stocks, bonds, cryptocurrencies, real estate and other investments.

Annual losses from Ponzi schemes and other frauds in the United States are substantial. In 2023, consumers reported losing more than $10 billion to fraud, marking a 14% increase from 2022. Investment scams accounted for the largest portion, with losses exceeding $4.6 billion.

Not all investment scams are Ponzi schemes, but they often share similar characteristics. In 2023 alone, 66 Ponzi schemes were uncovered, representing nearly $2 billion in potential investor losses. This is almost double the number of schemes just two years prior in 2021.

Whistleblowers have specific knowledge and understanding of Ponzi schemes and how they operate. They may be investors, industry insiders, and even the scheme's employees. Sometimes outsiders recognize the signs of a Ponzi scheme and report their findings to the SEC.

The lure of fast or easy money is difficult to resist. Ponzi schemes appeal to this lure with claims of high and/or guaranteed returns with low risk, among other claims. Their usual scheme uses a continuous cash flow to pay "investor dividends" while misappropriating most of the money for as long as it lasts.

Although Ponzi schemes can be difficult to identify and uncover, there are some key characteristics and red flags that indicate this type of fraud, including:

• Promises of higher returns than normal investments with little to no risk
• A lack of transparency
• Aggressive, high-pressure sales tactics urging investors to move quickly and recruit more new investors
• Consistent returns in any market while returns from other investments fluctuate with market conditions
• The investment strategy is frequently described as “secret” or “too complicated to explain,” leaving investors in the dark about how it operates, and the operators provide falsified documents to show its alleged legitimacy.
• Regularly needing new investors to keep the money flowing into the “fund” to pay previous investors their “dividends” with the new money because there is no actual business generating revenue.
• Payments and documentation problems: investors may experience issues with withdrawing their funds or getting account statements, which are usually falsified to show “returns”

When too many investors decide to withdraw their money and cash out, or the inflow of new money slows down and eventually ends, the scheme collapses.

Because many frauds go unreported or undetected, these figures likely underestimate the true scale of investor losses. The Federal Trade Commission (FTC) data shows a consistent upward trend in fraud losses, with the total amount increasing by more than 30% between 2021 and 2022.

The effects of Ponzi schemes extend beyond direct financial losses. They can undermine trust in the financial system, leading to broader economic consequences. For example, after the Bernie Madoff scandal, investors in areas with high numbers of Madoff victims withdrew $363 billion from their advisors, opting for the perceived safety of banks.

The SEC appreciates information from people who submit information alerting them to Ponzi schemes Through its own Whistleblower program, the SEC offers incentives to those who help the agency uncover, stop, and prosecute those involved in and operating Ponzi schemes. In some cases, the SEC’s Division of Enforcement can stop a Ponzi before its mission is completed.

Created in 2011 through the Dodd-Frank Act, the SEC’s Whistleblower program encourages whistleblowers to come forward and submit information about a fraudulent investment operation. The agency offers monetary rewards for tips and information that are successful in stopping Ponzi schemes and other types of fraud.

Whistleblowers can be anyone with original and credible information that alerts the SEC to an active Ponzi scheme. The information must be something that the SEC does not know about. You must be the first person to submit this information, whether it’s initial information or new information after an investigation has started. The information must also be timely; sitting on information may render you ineligible for an award. If the SEC uses your information, you may be asked to provide additional assistance to SEC staff during the investigation.

The whistleblower's identity is kept confidential throughout the investigation.

Following a successful investigation, a whistleblower may be eligible to receive an award totaling 10% to 30% of monies collected in a case exceeding $1 million in fines and other sanctions.

The SEC has a specific process for reporting a Ponzi scheme. Using the SEC’s Tips, Complaints, and Referrals (TCR) system, individuals can easily submit their information. If you prefer to submit your information anonymously, you must be represented by a securities whistleblower attorney.

Monetary awards are just one reason to become a whistleblower about a Ponzi scheme. There are several reasons why it's important to notify the SEC of the fraud and submit specific, credible, and timely information to them:

• Notifying the SEC allows them to allocate resources to prioritize cases effectively to investigate Ponzi schemes
• Alerting the SEC can prevent further financial losses for current and potential investors. The sooner a Ponzi scheme is uncovered, the fewer people are likely to become ensnared.
• An increased likelihood of fund recovery: early detection and reporting of a Ponzi scheme can potentially lead to a higher recovery rate of stolen funds, as assets may not have been fully dissipated
• Legal consequences for perpetrators: Specific and credible information can lead to the successful prosecution of the scheme's operators, resulting in criminal charges, fines, and prison sentences.
• Timely reporting can mitigate the broader societal impacts and harm of the damaging effects felt by individuals, families, and communities, including damaged relationships and mental health issues.
• Ponzi schemes can have negative effects on the broader economy. Reporting them early can help maintain trust in financial systems and prevent wider economic repercussions.

Ponzi schemes can run for many years before they begin falling apart. The sooner a whistleblower can notify the SEC of a Ponzi scheme, the sooner they can begin stopping it from running, potentially saving more investors from being fleeced.

How do you know the SEC will pay attention to your information? Get help from an SEC whistleblower attorney who can help you assemble your information and present it to the SEC so that they will take notice.

Whistleblowers help everyone by notifying the SEC of conduct that harms the investing public, while also earning financial compensation for themselves. Hiring experienced SEC counsel may greatly increase the probability that the SEC will initiate an investigation based on your information. If you wish to remain anonymous, you must be represented by an attorney, who will submit everything on your behalf.

Silver Law and the Law Firm of David R. Chase jointly have experienced SEC whistleblower lawyers, including a former SEC Enforcement attorney on the team, so you will always have guidance throughout the process. Our SEC whistleblower attorneys can help you if you have information regarding securities or investment fraud, violations of federal securities laws, false filings, market manipulation, or other misconduct. You must provide timely, credible, and original information or analysis to be eligible.

Contact us through our online form or at (800) 975-4345 for a consultation. Our attorneys work on a contingency fee basis. This means that it costs you nothing to hire us, and we collect our fees only if you receive an SEC bounty. Because we get paid when you do, we have the incentive to help you collect the maximum award available.