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Chain
letters and other similar Ponzi/Pyramid schemes involving
nominal losses to those who participate are not likely to
be investigated by Private Investigators, since no victim
would be likely to have suffered the sort of losses that would
justify the associated costs. On the other hand, frauds and
scams related to investment “clubs,” tax “avoidance”
schemes, offshore trusts, etc., may be characterized as Ponzi/Pyramid
Schemes depending upon their structure and marketing, and
these sorts of scams often involve significant individual
losses.
The investigation of these cases is pursued much like the
investigation of other financial crimes, but the investigator
pursuing them should be aware that:
1)
The denial common to most fraud victims often escalates
to hostility and resentment in these cases. These schemes
typically pay off until the inevitable collapse that the
investigator may well precipitate. Even if you convince
them that they have been scammed, these “investors”
do not want you to “rock their boat,” and they
typically blame the investigator who collapses the program
prematurely (from their perspective).
2) The operator of the scheme is dependent upon the cash
flow provided by the pyramid and therefore vulnerable. Investigation
that threatens to collapse an otherwise thriving pyramid
often results in a settlement offer based upon a global
nondisclosure agreement.
The
bottom line is, Ponzi Schemes are outright fraud and Pyramid
Schemes are inherently deceptive and contrary to public policy.
The deception arises because the market can quickly become
saturated and the seemingly endless chain can rapidly end.
Consequently, many participants will never recoup their investments,
let alone make a profit. See In
re Holiday Magic, Inc., 84 F.T.C. 748 (Oct. 15, 1974);
Webster v. Omnitrition Intern.,
Inc., 79 F. 3d 676, 781 (9th. Cir. 1996) and SEC
v. International Loan Network, Inc., 968 F. 2d 1304,
1309 (D.C. Cir. 1992).
Further
information and discussion regarding the investigation of
these schemes is presented in the section entitled, Investigative
Strategies.
I welcome
your comments,
questions and suggestions.
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