In times of economic instability, not all threats come from shrinking demand or rising costs. Some are far more deceptive, and potentially far more devastating. As the likelihood of a recession increases and financial uncertainty spreads, one type of fraud is making a dangerous comeback: Ponzi schemes.
These schemes may not make headlines like they did in the Madoff era, but they’re still out there, and when the economy tightens, they’re often exposed. Why? Because Ponzi schemes depend on a constant flow of new investor money to pay earlier participants. When times get tough and that inflow slows, the entire structure collapses.
And it’s not just speculation, in 2023 alone, more than 60 Ponzi schemes were uncovered across the U.S., involving nearly $2 billion in potential losses. These numbers highlight a growing concern, especially for business owners with discretionary income and limited time to vet every opportunity that comes across their desks.
How Do Smart Business Owners Get Caught?
Contrary to popular belief, Ponzi schemes don’t just target the uninformed. They often reel in experienced professionals – including small and mid-sized business owners – with promises of high, steady returns and low risk. The pitch is polished, the advisor seems reputable, and the pressure to act quickly can override common sense.
These fraudsters are masters of trust-building. They may come recommended by acquaintances or seem embedded in your professional community. But once you’re in, the structure relies on secrecy, confusion, and delaying withdrawals. And by the time you sense something’s wrong, your money may already be gone.
Warning Signs to Watch For
To protect yourself, your business, and your financial future, stay alert to these red flags:
- Too-good-to-be-true returns: If the investment promises consistent, outsized gains regardless of market trends, it’s worth a second look.
- Opaque investment strategies: If you can’t clearly understand how the money is made or where it’s going, that’s a red flag.
- Reinvestment pressure: Pushy tactics to “roll over” your returns or discourage withdrawals can indicate trouble.
- Unusual withdrawal restrictions: Legitimate investments allow you access to your funds. If yours don’t, ask why.
- Unregistered individuals or products: Always verify that any advisor or investment is registered with the SEC or FINRA.
If You’ve Been Targeted, Don’t Wait
Admitting you’ve been scammed isn’t easy, especially for successful business owners. But time is critical. The sooner you speak up, the better your chances of recovering a portion of your investment and limiting long-term damage.
The IRS may allow certain theft losses to be deducted, including income you reported but reinvested in the fraudulent scheme, depending on your circumstances. There are also safe harbor rules that could apply if you’re not pursuing recovery through the courts.
That said, these situations are complex and should be handled with the support of experienced professionals. We can help you assess your options, report your losses properly, and make informed decisions moving forward.
Stay Smart and Seek Help When You Need It
Whether you’re evaluating a new investment opportunity or think you may have been caught in a scam, don’t go it alone. We help Connecticut business owners manage risk and protect what they’ve built, especially when times get tough.
If something feels off, it probably is. Let’s take a closer look together.