(WMC TV) - Ponzi schemes, or "pyramid" schemes, start with a bogus investment operation. The boss at the top typically makes outrageous guarantees or promises of high returns.
"Investments offering to return 40% or even 20% - something that is much more than what they can get in a normal investment - often those are frauds," said Asst. U.S. Attorney Michael D. Anderson.
The operation pays out returns from money paid in by the next group of investors instead of from the profits.
As more "investors" pile on, the pay-outs are diluted. Eventually, they dry up.
"People are often brought in by friends and family members or people from church who are well-meaning, but fallen to victims themselves," Anderson said.
Ponzi scheme leaders often display their wealth as a lure or pose as stockbrokers.
"When someone claims to be a stockbroker, you can research it on your own with websites such as the SEC (Securities Exchange Commission)," said U.S. Postal Inspector Troy Dickinson.