Ponzi schemes are one of many common types of investment fraud. Far too often, a Ponzi scheme could have been cracked wide open much earlier if the financial institutions involved had been doing their job instead of consciously avoiding knowledge of the Ponzi scheme or actively participating in misconduct.

The role of financial institutions in Ponzi schemes, such as commercial banks and investment banks, can also lead to a finding of liability in subsequent litigation. If you have lost money to a suspected Ponzi scheme, an attorney who regularly represents victims of investment fraud in cases against commercial banks and other financial institutions for aiding and abetting a Ponzi scheme or breach of fiduciary duty.

Ponzi Scheme Red Flags

In a Ponzi scheme, the fraudster will usually promise investors significant returns with little to no risk involved. In reality, they are not paying investors actual profits from a legitimate investment. The “returns” are nothing more than money provided by newer investors that is paid out to earlier investors.

Whether it takes months or years, these schemes always collapse when the fraudster can no longer attract new sources of funding. Unfortunately, by the time these schemes are detected, investors will often have lost millions of dollars because the fraudster will have dissipated all their hard-earned money.

There are numerous red flags that investors should be aware of and look out for – but third-parties working with the fraudster must also pay attention as well. In addition to guaranteeing high returns with minimal risk, Ponzi schemers will often deny or obfuscate when investors request their money back to deny their funds down the line. Usually, the money has flowed through a financial institution and the bank may provide other services as well.

Very consistent returns even during times of market volatility can be a warning sign as well. Opaque investment strategies, unlicensed investment promoters, and/or unregistered securities are also major red flags. Ponzi schemes can be a particularly difficult type of financial fraud from which investors can recover their losses.

Because the fraudster relies on the inflow of new funds to keep the scheme going, that money is usually long gone when the unlawful activities do come to light. However, the role that financial institutions play in Ponzi schemes can create other forms of third-party liability that result in monetary recovery for victims.

Financial Institutions And Third-Party Liability In Ponzi Schemes

Several types of financial institutions are commonly found liable in Ponzi scheme cases. These can include commercial banks, national banks, investment banks, and brokerage firms, among others. These parties can be held responsible for supervising the schemer’s conduct or for providing material assistance to facilitate the Ponzi scheme. Even if the financial institution was not directly aware of the fraud, they can be legally liable for facilitating, aiding, or abetting it.

Poor internal monitoring policies and conscious avoidance of red flags that allowed the scheme to go undetected can also result in a finding of liability against a financial institution for victims’ Ponzi scheme losses. Banks are expected to have complex monitoring systems to detect red flags, question aberrant activity, and frequently have front line customer facing employees who are trained to detect misconduct.

Along with supervisory systems, banks also have complex anti-money laundering detection services, commonly referred to as AML systems which can also trigger red flags that banks should investigate. Collectively, these supervisory and AML departments review substantial data and customer activity with the expectation that suspicious activity will be identified, investigated and reported if misconduct is found. However, banks are frequently reluctant to report fraudulent activity if it means that it may lose a good customer.

Silver Law Group has a lengthy, respected track record of representing investors in class action lawsuits against brokerage firms, investment banks, and other financial institutions involved in Ponzi schemes. A settlement or court award could recover civil monetary penalties, restitution, and other damages you suffered because of their failure to identify the warning signs or act upon them.

Silver Law Group Can Explain The Role Of Financial Institutions In Ponzi Schemes And Push For Damages

Scott Silver and the attorneys at Silver Law Group are deeply familiar with the role of financial institutions in furthering Ponzi schemes. We represent investors nationwide in civil lawsuits against these entities that, whether due to intentional fraud or negligence, perpetrate these schemes against unwitting investors.

If you believe that you were the victim of a Ponzi scheme, we can help you understand your best legal options. You may be able to recover a portion of your losses through a class action against one of these institutions.