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Tax Lawyer > Blog > Ponzi Schemes Tax Laws > SEC Charges Website Business of Running Ponzi-Like Scheme

SEC Charges Website Business of Running Ponzi-Like Scheme

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Many of us generally know that a Ponzi scheme is when someone pretends that there is an investment, but in fact doesn’t use the investors’ money to invest in anything. The schemer uses other investors’ money to pay anyone who wants to “cash out,” and so long as everyone doesn’t want all their money at the same time, the scheme can continue going.

But there are also what’s known as “Ponzi-like” schemes, which fit the general description of a Ponzi scheme, but which do not follow the traditional mold of the everyday Ponzi scheme. The investors may not be induced to make an investment in a stock, retirement, account, future, or other financial instrument at all. The SEC recently announced that it is opening an investigation into one of these Ponzi-like schemes.

Fraudulent Website Business

The scheme involves, of all things, website development, a seemingly innocuous field that would seem difficult to defraud anybody with. The SEC announced that the company it is accusing induced investors to buy into the purchase and development of websites, promising the investors lucrative returns on mostly advertising-related revenue.

Investors had to sign an agreement, saying they would make a return of between 13%-20% and that the company promised it would use investor money to purchase, build, house and maintain the websites that the investors were investing in.

Investors were told that if they invested, they stood to make about 50% of a given website’s revenue. The investors may or may not have been savvy with money or technology as the scam was advertised through radio and even through a podcast. The company made a regular appearance on the Inc. 5000 fastest growing companies in America, giving the appearance of legitimacy

The plan apparently worked (for a time), as the SEC estimates that the company raised over $75 million in just about 3 years, from 500 investors.

SEC Files a Complaint

The SEC’s complaint alleges that the promises made to investors were false, and that in fact there was no legitimate business opportunity.

However, there was some investment, and the websites did generate some revenue—about $9 million worth of advertising income. The problem is that over $30 million was paid to investors during that time. To conceal the fact that the plan was a Ponzi-like scheme, the company turned to short-term loans to pay off people withdrawing their money.

The SEC also alleged that the owner and manager of the scheme used the investors’ money to make mortgage payments on his primary home, and to pay tuition for family members schooling.

An SEC investigation apparently didn’t stop the company; as late as November 2019, the company had raised $2 million in additional funding from duped investors.

Call the Florida Ponzi scheme lawyers at Lehman Tax Law at 561-368-1113 for help today if you have legal questions related to tax fraud and need professional assistance.

Resource:

investopedia.com/ask/answers/09/ponzi-vs-pyramid.asp

https://www.lehmantaxlaw.com/cryptocurrency-investors-are-the-latest-ponzi-scheme-target/

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