Last year, a Michigan man decided to start a business. He named it, attracted some investors, and made the investors happy by generating gains which in turn attracted more investors. It sounds like a successful business story. In this case, however, the man who started the business was allegedly committing a white collar crime known as a Ponzi scheme.
The man is facing charges of fraud after allegedly operating the scheme for the last year. According to reports, he solicited an estimated $1 million from investors in his company, which claimed to exchange foreign currency for a profit. Over 40 people invested in the company.
Instead of performing any real business, people who run Ponzi schemes pay older investors with money from newer investors to generate artificially high dividends. The payments are intended to show that money is being made by the business, when it actually isn't. Older investors see their financial gains as a success in the business and therefore attract new investors which continue to drive that cycle that allows Ponzi schemes to work.
In this case, the defendant also is accused of using interstate wires in the execution of fraud, since he conducted business with his investors via the Internet.
People who would otherwise not commit a felony may sometimes get caught up in a white collar crime. Some people think that they can get away with it because it is a nonviolent crime. Additionally, when business is conducted online and not face-to-face, a person may feel even less responsible for hurting someone. The ease with which these types of situations can materialize can attract ordinary people because it may seem like a victimless crime.
People who are accused of embezzlement, fraud or other white collar crimes can face some serious consequences if convicted. A felony conviction can damage a reputation and affect personal relationships. They may also face time in state or federal prison.
Source: Wood TV, "Man charged with operating Ponzi scheme," Dec. 14, 2011