CRITICAL THREAT
Ponzi Scheme
Fraudulent investment scheme where returns for existing investors are paid using funds from new investors rather than legitimate profits.
Losses: Billions annually — Bernie Madoff alone stole $65 billion
Targets: Retirees, church/community groups, affinity groups
Updated: 2026-01-06
Also known as: Pyramid Scheme • Investment Club Scam • High-Yield Investment Program
1How It Works
A Ponzi scheme promises high returns with little or no risk. Early investors receive payments, but these come from new investors' money — not actual profits.
**How it operates:**
1. Promoter promises exceptional returns (10-20%+ monthly)
2. Early investors receive promised returns, building trust
3. Satisfied investors recruit friends and family
4. Money from new investors pays "returns" to earlier investors
5. Promoter takes a large cut for themselves
6. Scheme collapses when new investments slow down
**Why it works:**
- Early investors genuinely receive money, so they spread the word
- Exclusive "opportunity" creates urgency
- Affinity fraud targets tight-knit communities who trust each other
- Complex or secretive "strategies" discourage questions
How Scammers Make Contact
Word of mouthInvestment seminarsSocial mediaFinancial advisors
2Warning Signs & Red Flags
- Promises of high returns with little or no risk
- Unregistered investments or unlicensed sellers
- Overly complex or secretive investment strategies
- Difficulty receiving payments or cashing out
- Pressure to recruit new investors
- Returns are suspiciously consistent regardless of market conditions
- No documentation or official statements
- Promoter has a lavish lifestyle funded by investor money
3Real-World Example
"My financial advisor invited me to an exclusive investment club at our church. He showed us monthly statements with 15% returns. I invested $200,000 of my retirement. Two years later, he disappeared. The statements were fake — he had been paying old investors with new investor money. I lost everything."
— SEC Investor Alert case study
4How to Protect Yourself
- Verify investments are registered with SEC at investor.gov
- Check if the seller is licensed through FINRA BrokerCheck
- Be skeptical of guaranteed returns — all investments carry risk
- Understand the investment — if you can't explain it, don't invest
- Don't invest based on trust alone — verify everything
- Be wary of pressure to recruit others
- Get independent advice before large investments
5What To Do If You're a Victim
- 1Stop investing immediately
- 2Gather all documentation — statements, emails, contracts
- 3Report to SEC at sec.gov/tcr
- 4Report to your state securities regulator
- 5Report to FBI IC3 at ic3.gov
- 6Consult an attorney about potential recovery
- 7File a complaint with FINRA if a broker was involved
Report This Scam
?Frequently Asked Questions
What is Ponzi Scheme?
Fraudulent investment scheme where returns for existing investors are paid using funds from new investors rather than legitimate profits. A Ponzi scheme promises high returns with little or no risk. Early investors receive payments, but these come from new investors' money — not actual profits.
**How it operates:**
1. Promoter promises exceptional returns (10-20%+ monthly)
2. Early investors receive promised returns, building trust
3...
How common is this type of scam?
Ponzi Scheme is classified as a critical risk threat. Reported losses: Billions annually — Bernie Madoff alone stole $65 billion. This primarily targets Retirees, church/community groups, affinity groups.
Can I get my money back?
Recovery depends on how you paid. Credit card payments may be reversed through chargebacks. Wire transfers and cryptocurrency are rarely recoverable. Report immediately to your bank and file complaints with the FTC at reportfraud.ftc.gov and FBI IC3 at ic3.gov.
How do I report this?
Report to the FTC at reportfraud.ftc.gov. For internet crimes, file with FBI IC3 at ic3.gov. For identity theft, visit identitytheft.gov. Also contact your local police and your bank.
Sources & References
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