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A Ponzi Fraud is a fraud named after Charles Ponzi who set up a scheme in 1920 which defrauded people into investing on the promise of high rewards. Similar schemes have followed since then and are illegal.


The schemes work by using other investors money to pay the initial investors. So a group of investors are encouraged to invest into the scheme on the basis that they will receive a large return. Further investors are then found and the money that they invest is used to pay off the initial investors and so on.


Of course this can only continue so long as sufficent investors are found to pay off those that joined before them. Once the supply of new investors dries up the whole scheme comes crashing down and the investor lose their money. A well known recent example of this is Bernie Madoff who set up a scheme that traded for many years eventually losing billions of dollars.




There are a number of potential charges that you could face in relation to a Ponzi Scheme. It will depend on the nature and size of the scheme and your involvement in it.


If it is a large scale fraud then you could be charged with Conspiracy to Defraud. This is a serious charge that will always be dealt with at the Crown Court. 


Alternatively if it is a smaller fraud or there is no evidence that you acted in association with anyone else then you could face a Fraud Charge. It would be alleged that you made a False Representation with the intent to making a gain.


There are also various regulations relating to investment that may have been breached. 


The Financial Services and Markets Act 2000 regulates the types of activity that require you to be an authorised or exempt person. If you are neither then it is an offence to carry on certain activities. One of these is taking deposits. 


Section 19(1) states – 


The general prohibition.

(1) No person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is—

(a) an authorised person; or

(b) an exempt person.

(2) The prohibition is referred to in this Act as the general prohibition.


The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 clarifies what is deemed as accepting deposits. 


Section 5 – 

Accepting deposits


5.—(1) Accepting deposits is a specified kind of activity if—

(a) money received by way of deposit is lent to others; or

(b) any other activity of the person accepting the deposit is financed wholly, or to a material extent, out of the capital of or interest on money received by way of deposit.

(2) In paragraph (1), “deposit” means a sum of money, other than one excluded by any of articles 6 to 9, paid on terms—

(a) under which it will be repaid, with or without interest or premium, and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it; and

(b) which are not referable to the provision of property (other than currency) or services or the giving of security.

(3) For the purposes of paragraph (2), money is paid on terms which are referable to the provision of property or services or the giving of security if, and only if—

(a) it is paid by way of advance or part payment under a contract for the sale, hire or other provision of property or services, and is repayable only in the event that the property or services is or are not in fact sold, hired or otherwise provided;

(b) it is paid by way of security for the performance of a contract or by way of security in respect of loss which may result from the non-performance of a contract; or

(c) without prejudice to sub-paragraph (b), it is paid by way of security for the delivery up or return of any property, whether in a particular state of repair or otherwise.


The main difference between the Fraud offences and the breach of regulations is that the regulations offences do not require the prosecutor to show dishonesty and is therefore easier to prove.




The main defence to the Fraud charges is the normal defence of lack of dishonesty. The prosecution have to show that you were dishonest. Although it is for the prosecution to prove that you were dishonest you may be expected to explain how the scheme would have made the levels of returns promised without fraud. 


At a lower level in the scheme you may be able to show that you knew nothing of the fraud and were simply doing a job without being aware of any wrongdoing. 


In relation to the regulatory offences then it is a defence to show that you did not hold yourself out as accepting deposits on a day to day basis but that you accept them only on particular occasions. The court will look at the frequency of the occasion you accepted deposits. If the jury believe that you held yourself out as being generally willing on any normal day to accept deposits. (SCF Finance v Masri (No 2))




The fraud matters will be dealt with by way of reference to the Sentencing Guidelines for Fraud. It will in large part depend on the sums involved and your level of involvement but the court will be advised to consider a prison sentence even for smaller frauds around £2500 if you are deemed to have played a leading role. For large scale fraud sentences in excess of 10 years in prison are not uncommon.


In relation to the regulatory offences the maximum penalty is 2 years in prison. You may also be charged with money laundering offences which carry a much higher penalty of up to 14 years. Even if you are able to show that you have made no gain and have in fact be ruined by the scheme yourself it is likely the court will consider a prison sentence of over a year. 




These matters can be extremely complicated. It is vital that you get specialist advice as early on in the case as possible. We will be able to advise you as to whether you have a defence or whether you should plead guilty. We work with a team of expert barristers who will represent you in court to get the best possible results for you. To see how we are different from most other solicitors see our home page.


We are also aware that this is a very worrying time for you and your family. so apart from working to get the best result we will try to remove some of the stress for you. We offer award winning client care and will work with you to take off some of the worry and burden. If you wish us to involve your family so that we can help remove the worry we are more than happy to do so.  


It will often seem hopeless and as if you have no where to turn. We will do all that we can to reassure you and look after you but ultimately we are aware it is a results business and we will do everything we can to get you the best possible outcome by offering honest, straight forward advice.


For Free Initial Advice call us on 01623 397200