People thought they had a great investment in a real estate investment company. They expected large returns on their investments, but the company ran out of money in January 2009. At 6 a.m. Tuesday morning, federal agents raided the home of the owner of the investment company, arresting him and seizing his property. The suspect has been taken into custody by agents from the FBI and the Internal Revenue Service and is being charged with wire fraud, mail fraud and money laundering.
The FBI's Division of Finance and Corporate Securities believes the accused was running a Ponzi scheme. A Ponzi scheme is a form of fraud in which investors are promised large returns. However, the returns the investors do receive are usually paid back with their own initial investment and with the investments of later investments, instead of with profits actually earned by a business. In short, an operator of Ponzi scheme never actually earns money on the investments made, but rather merely shifts the money around. Eventually the money runs out, and investors lose their investments. The most recent example of a notorious Ponzi scheme is the Bernard Madoff affair, in which investors lost billions.
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