Not many names strike fear in the hearts of investors like that of Bernie Madoff. Since the former investment advisor was arrested for masterminding one of the largest Ponzi schemes in history, the name Madoff still conjures up images of fraud, disgrace, and tragedy. Investing is a risky business for even the most sophisticated consumer. Madoff victims included some of the wealthiest and most successful businessmen in the country. So, if a captain of industry can be taken in, what’s to protect a regular investor from the Madoffs of the world?


In a Ponzi scheme, investors are sold on a financial instrument that promises to pay aggressive returns. Research and presentation documents are falsified, and the initial investors are usually sold on the perpetrator’s seemingly positive reputation—Madoff was the NASDAQ Chairman at one point. Early investors are paid with the funds from later ones, and the scam perpetuates as long as new investors are willing to buy in.

The structure of this type of investment fraud is a pyramid, with only those at the top realizing the big gains, but it is not a pyramid scheme.

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A Pyramid scheme, first of all, is perfectly legal. That’s the primary difference in a Ponzi or pyramid scheme. Pyramid proponents prefer the term “multi-level marketing”, but the two are fundamentally the same.

In this sort of investment, participants are aware that their returns on investment are dependent upon two things—selling products and recruiting new members to the organization. Tupperware is the pinnacle of pyramid marketing, followed by companies like Mary Kay, Avon, Rodan + Fields and Pampered Chef.

For the most part, pyramid schemes are not under the SEC umbrella, but rather the Federal Trade Commission (FEC). Most pyramids are not traded securities, since there is a tangible asset for sale. These are some of the red flags that would indicate a pyramid scheme.

  • Upfront membership fees, or a commission to recruit new members, especially when there is no product involved.
  • Inflated prices of the products—this indicates the only sales are to members down the pyramid chain.
  • Delays in meeting obligations—pyramids in the “pre-launch” phase of the business encourage members to “keep the faith” while they are “finishing up the paperwork”. These scams never do launch.
  • Unverifiable “secret plans”, new technologies, and foreign connections are all tricks that scammers use to make you believe they have something special to offer.

Contact a Ponzi and Pyramid Scheme Attorney


If it seems too good to be true, it probably is—especially when you’re considering a new investment. Here are some warning signs that a Ponzi operation has you in their sights:

  • “Guaranteed” returns—as much as 20% per annum, or even per month. To put that into absurd claim into perspective, Warren Buffet has averaged a 20% return over the past 15 years.
  • Overly complex business model. If the broker can’t or won’t explain in simple terms how a given instrument makes money, don’t invest. Ponzi schemes are noted for being notoriously difficult to understand.
  • Foreign products. If a broker tries to sell you on a can’t miss foreign investment, ask yourself this: if it’s so hot, why isn’t it selling well in its own country?
  • “Risk-free” investments. Even the safest municipal bonds carry some risk, so if a broker is telling you that your initial investment is safe and you can’t lose money, they are not telling the truth.
  • High-pressure sales tactics. Ponzi brokers operate with a high-pressure sales pitch by saying things like this is a once in a lifetime opportunity, shares are selling fast, or we’re only offering this to our best customers. These tactics may include encouraging friends and family to invest as well.

If you’ve been approached with this sort of “can’t lose” investment, chances are good that you are being offered a rung on a Ponzi ladder. You do have some recourse besides saying no thank you, you can report your suspicions to the Securities and Exchange Commission (SEC). If you are an employee of a securities firm, or an associate with information that makes you suspect such illegal activity, you, too, can report your suspicions to the SEC.


All of the Ponzi and pyramid schemes we talk about have one thing in common—someone came forward to notify authorities of the wrongdoing—a whistleblower. Whistleblowers are usually employees or ancillary associates of the fraudsters—assistants, secretaries, CPAs, other securities firms—anyone who is privy to financial information and documents or understands the markets to know when something’s fishy.

The Whistleblower Program not only guarantees anonymity to the whistleblower, but an incentive to report wrongdoing, provides a reward for specific, timely, and accurate information about violations of securities rules. The reward is up to 30% of monetary sanctions collected through actions in cases brought by the SEC or other government regulatory agencies, in cases where the sanctions exceed $1 million. The program also forbids retaliation against employees who come to the SEC with information about possible violations.

There is an important clause in the Whistleblower Program that you should be aware of before you file a complaint with the SEC. In order for you to maintain your anonymity, and be eligible for the benefits provided by the Whistleblower Program, you must be represented by counsel. Your attorney will take care of all the requisite filings and communications with the SEC. Once the case is adjudicated and if the sanctions exceed $1 million, your counsel will know how to ensure you receive any monies to which you are entitled-the SEC does not automatically send you a check.

One more reason you need experienced attorneys if you suspect securities or trade fraud is that the SEC Whistleblower protections do not apply to employees who report their suspicions to supervisors or corporate compliance office. The Supreme Court made this ruling in 2018. Some legal experts are concerned this is the first break in dismantling the Whistleblowers Program altogether.

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These are some recent whistleblower complaints and rewards.

  • $14.7 million award to whistleblower in an EB-5 Visa scam
  • $22 million to a former Monsanto executive
  • $16.5 million to a DeutscheBank executive
  • $46,000 initial payment in 2013 from China Voice Holding


Choosing the right attorney for your case is paramount in ensuring your claims are properly heard, investigated, and that ultimately the wrongdoers are penalized. Securities law is complex, and your family attorney is probably not the right choice in filing a whistleblower report. Price Armstrong specializes in securities law and consumer fraud protection. We have expertise in representing whistleblowers in their actions against institutional malpractice, and have the knowledge to partner with you through this somewhat unnerving journey.

If you suspect a Ponzi or illegal pyramid scheme, let our team of experienced attorneys at Price Armstrong help you navigate the unknown. Call us today for a consultation – we will work through the process with you and assist you in any way we can.

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If you have suffered financially because of a Ponzi or pyramid scheme, contact the attorneys at Price Armstrong. We can help you seek justice and protect your rights throughout the process. We represent clients nationwide with offices in Birmingham, AL, Tallahassee, FL and Albany, GA. Call us today at (205) 208-9588 for a free initial consultation and review of your case. Let us fight for you – call now!