Ponzi Schemes in Chicago: A Lesson in Protecting Investors

The Ponzi scheme deservedly has a very bad name in Chicago because it inevitably leads to the process of bankrupting investors. It is confidence trickery at the highest level and with grand impact. The best definition of a ponzi scheme is one in which investors are only paid through the investor’s own money. Therefore, the investor is simply giving money to the leader of the scheme and making no discernible profits. The fraudulent investment has been made famous by the likes of Madoff but before that, there were very many victims that went unaided. The courts have classified it as a white collar crime based on the financial implications of its enactment and the fact that it inevitably involves a level of fraud.

For the defense attorney, the person accused of a Ponzi scheme represents unique opportunities and challenges. First of all, it is more than likely that the prosecutor will have a long list of victims with impact statements to sway the jury. Secondly the evidence is there but the last remaining ingredient is to prove the mens rea or the thought process that goes into committing fraud. Some defendants argue that promising great profits is not a crime but rather a sign of misguided ambitions. However, the courts are of the view that promising profits that are clearly unrealistic and knowing that they are unrealistic is a fraudulent activity that must be punished accordingly.

Preparing a Convincing Defense

The defense attorney should try to establish whether the defendant made any promises to the victims and whether those promises were rooted in objective fact. Making a bad investment is not a Ponzi scheme and sometimes victims will turn on their lead advisor when the business goes bust. The Ponzi scheme is unique in that there is no prospect of making any profits since the returns are extracted from other victims who pay the subscription fees and invest their own money (see the Goyal case). Attorneys should note that the lack of violence does not in any way reduce the discretion of the court to impose a very significant term of imprisonment. These crimes are treated seriously because they affect so many vulnerable people.

The federal government has deemed the Ponzi scheme as one of those crimes that can be tried at the national level. That might mean that the penalties differ from what Chicago might recommend so as to ensure consistency in prosecuting this specific type of criminality. One of the results of the involvement of the federal agencies is the possibility that the investigation will take a lot longer than usual. The FBI (Federal Bureau of Investigations) and SEC (Securities Exchange Commission) may get involved. The intrusion into the private affairs of the defendant is a given.

Possible Penalties

We must return to Madoff in order to understand the extent of the sanction that the court could possibly deploy. In this case the fraud led to the potential loss of about $50 billion. There were thousands of victims. However, the 150-year prison sentence seemed excessive when compared to the leniency of European countries in these matters. Because of the seriousness of the crime, the focus of the defending attorney is on getting an acquittal. When that fails, he or she should ask for either a lower charge or even a reduced sentence.

It is important to note that no amount of character witnesses is going to wipe away a fraud on the scale of the Madoff saga. Therefore, the defense team should be realistic when selecting and implementing a strategy. The courts are sometimes irritated by transparent attempts to clutch at straws. A case in point is the use of religious laws to defraud customers and then attempting to use religious liberty to protect the defendant. Call David Freidberg Attorney at Law now at 312-560-7100 to get an expert attorney who will fight to win your case.

(image courtesy of Greg Rakozy)