Investors aren't unprotected in legal terms when their investments aren't handled ethically. Investments are not without a good deal of stockbroker fraud but the cases are often hard to prosecute because circumstantial evidence is frequently the only proof. It's important to gain the services of an excellent attorney. Investment fraud can be defined generally as any misinformation, omission or misrepresentation of the truth given by an investor due to negligence or lies. Ponzi schemes are a kind of fraudulent system that gives high returns to investors from their own or other investors' money rather than the profits of a corporation or individual. To keep them going, those running them have to constantly find new cash flow through new investors. Ponzi schemes were originally named after Charles Ponzi, a man who successfully carried out the system in the 1920s. He didn't invent them, though. Charles Dickens detailed two accounts of such schemes in two novels that were penned during the 1800s. Ponzi was the most famed because of the huge success of his own scheme. It became well known through north America. Ponzi schemes aren't without warning signs. Usually, potential investors are given enormous promises of returns. They're also explained to investors using vague terms such as hedge funds or offshore investments. The agents of Ponzi schemes take advantage of clients who know little about the investment world. Otherwise they claim that the investment strategy is secret so that competitive edge can be kept. Sometimes the schemes start out as legal investments that go wrong. To cover up their disintegration, the brokers cover up the failures by giving false returns and fraudulent documents. Ponzi systems often pay out well initially, giving investors false hopes and a sense of security. This tends to tempt other investors to join, perhaps gained through the word of mouth of current clients who attract their own friends and family members. The new investors' money is then used to pay out the initial group of clients. The high initial returns often lead investors to extend their investments. This allows brokers to operate with less capital because they're able to send false records to long term clients instead of real money. Original investors then stay invested even longer believing they're making excellent returns. Further investments are sometimes made by long term clients who work according to the false records they're receiving. Ponzi schemes never end well, even when they aren't stopped by legal entities. Brokers might disappear with the money they've gathered. When they don't, they become victims of slowing investments that leave them with little liquidity to use to pay clients. External circumstances may also lead to a high cash withdrawal attempt by many clients, which naturally exposes the fraud. Large en mass withdrawals usually happen in economic downfall. Pyramid schemes are not unlike Ponzi schemes in many regards. They also give mistaken beliefs to their investors to gain money from them. Ponzi schemes use a well known category of stockbroker fraud called the 'greater fool' theory. This is when investors make poor decisions based on the belief that they can later unload them onto greater fools. Learn everything you've ever wanted to know about pyramid schemes and get a list of the warning signs of stockbroker fraud at http://www.starrausten.com/practice-areas/securities-fraud/case-history/ now.
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