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White Collar Crime: Ponzi Schemes and Pyramid Schemes

White collar crime can take many different forms, and there are a wide variety of charges that can be brought in connection with a white collar criminal offense. According to Georgetown University, the term white collar crime is used to refer to offenses “that are designed to produce financial gain using some form of deception,” and white collar crimes can involve fraud, money laundering, embezzlement, tax evasion, insider trader, and other actions designed to gain an unfair financial advantage. Both Ponzi schemes and pyramid schemes involve white collar crime, and people in Texas can face serious charges under state and federal law.

Our Houston white collar criminal defense lawyers want to tell you more about Ponzi schemes and pyramid schemes, and to discuss potential charges you could be facing.

What Are Ponzi Schemes and Pyramid Schemes?

The terms “Ponzi scheme” and “pyramid scheme” are often used together, and sometimes they are even used in exchange for one another, although it is important to understand that Ponzi schemes and pyramid schemes are not the same. They are both schemes that involve fraud, and they are certainly similar to one another, but there are also some important distinctions.

What are Ponzi schemes and pyramid schemes? According to the U.S. Securities and Exchange Commission (SEC), a Ponzi scheme can be best described as “an investment fraud that pays existing investors with funds collected from new investors.” These schemes are named for Charles Ponzi, who “promised investors a 50 percent return within a few months for what he claimed was an investment in international mail coupons,” but he fraudulently used money from new investors to pay fraudulent returns to existing investors. The SEC clarifies that organizers of Ponzi schemes “often promise high returns with little or no risk,” and then “use money from new investors to pay earlier investors.”

In Ponzi schemes, none of the investors are involved in the fraudulent activity, which is largely what distinguishes these schemes from pyramid schemes. The SEC explains that pyramid schemes, like Ponzi schemes, promise a high return in a relatively short amount of time for an investment. Yet there is no actual product or service being provided, and unlike Ponzi schemes, participants must recruit new participants. To be clear, a pyramid scheme only “works” when investors are also recruiting other investors.

Types of White Collar Criminal Charges Associated with Ponzi and Pyramid Schemes

What types of criminal charges are typically associated with Ponzi and pyramid schemes? While charges can vary depending upon how the scheme was initiated and carried out, common types of charges can include, for example:

Mail fraud (where the scheme was furthered or carried out through materials sent through the mail);
Wire fraud (where the scheme was furthered or carried out through materials sent electronically, such as through email or text, or by telephone);
Securities fraud (where the scheme was furthered or carried out through fraudulent sale of securities); or
Real estate fraud (where the scheme was furthered or carried out through fraudulent sale of real estate).

Contact a Houston White Collar Defense Lawyer

If you are facing any type of charges related to involvement in a Ponzi or pyramid scheme, you should seek advice from a Houston criminal defense attorney today. Contact The Law Offices of Tad Nelson & Associates to learn more about how we can assist you.