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WhoCanISue.comFinancialPonzi Scheme Tax Recovery

Find A Financial Attorney To Help With Ponzi Scheme Recovery

 
Summary

If you have been affected by a Ponzi scheme of any sort, it is recommended you consult a tax attorney specializing in fraud to file a claim and recover any money lost.

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors rather than from any actual profit earned.

The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high, like 10 percent. The returns that a Ponzi scheme promises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities.

The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903.

Who Can Sue

The elderly are the most common group to be affected by Ponzi schemes because they are simply trying to get a return on their money to retire.

For example, 400 Hurst Financial investors are being sued for helping the North County lender in a multimillion-dollar Ponzi scheme that they allege preyed on the elderly.

They allege that the scheme created escrows and other documents that robbed investors’ funds that were supposed to finance construction of residential and commercial buildings.

The money was used instead to pay off earlier investors and to generate money to keep the scheme alive.

Internet investors are also a group subjected to the investing scheme.

The victims of a massive Internet Ponzi scheme have sued Bank of America for helping the fraud occur by continuing to do business with the alleged perpetrators despite numerous signs of illegal activity.

Also, if you watch television, read the newspaper, or surf new sites, you’re sure to have heard about the $50 billion Ponzi scheme masterminded by Bernard Madoff. The $50 billion in losses is merely an estimate. Some experts think that the actual losses will be much higher.

If you or a family member have been affected or have lost money involving a Ponzi scheme, it is important to contact a lawyer who specializes in fraud to recover as much money as possible in a timely manner.

Potential Recovery

Tax refunds could help victims of the alleged Bernard Madoff Ponzi scheme recover 35 to 50 percent of their losses, according to a U.S. tax law expert.

The IRS acknowledges Ponzi schemes as "theft losses," and there are several methods of tax recovery available.

However, each of these potential options of recovery has its limitations, restrictions and strict requirements that must be met in order to take advantage of the maximum tax benefits from the alleged Bernard Madoff theft.

There are three tax refund options for the victims.

The first is "Theft Loss," where in a Ponzi scheme, theft loss is an extremely valuable tax deduction that could have a cash value equal to 35 to 50 percent of the lost investment, depending on city, state and federal income taxes.

Next, we have "Capital Returns," where in certain cases, funds that were paid from a Ponzi scheme and reported as "income" in a previous year may instead be considered a return of the defrauded investor's capital.

Finally, with "Phantom Income," income taxes paid by Ponzi investors on what turns out to be fake profits, or "phantom income," may be recovered as theft losses or under certain circumstances by re-characterizing the income as non-existent.

Other common mistakes, that will limit the potential tax recovery, are failure to deduct tax losses in the proper year and entering into premature settlements that convert theft losses into capital losses of lesser total value.

Before making any settlements, you should contact a local fraud attorney to see what your options are.

Recent News

For conducting the biggest Ponzi scheme in history, Bernard Madoff got the maximum prison sentence of 150 years.

The 71 year old man had earlier asked for 12 years in prison for his crimes. Madoff has 10 days to decide whether to appeal his sentence.

Madoff ‘forfeited rights to assets totaling $170 billion.’ According to prosecutors, this amount ‘passed through his investment firm over the years.’ His wife is stripped of wealth, as well. Madoff’s wife Ruth also agreed to forfeit $80 million in assets, which include pieces of property in New York, Florida, and Manhattan.

According to court documents, the amount of $150 billion ‘represents the total amount of money that could be connected to the fraud.’ According to prosecutors on the case, ‘losses identified as fraud currently exceeded $13 billion.’

In the aftermath of the Madoff scandal, some tips to avoid a Ponzi scheme have surfaced.
  • Never settle for published or advertised track records.  Performance must either be verified by a reputable third party performance reporting entity.
  • Double check account statements provided by the Advisor.  Insist that any statements from the Advisor are also supplemented with statements from a third-party custodian, mutual fund company or brokerage firm.  
  • The manager must have his/her own money in the program.  Require third-party money managers to disclose how much of their own money they have in the investment programs they manage.
  • The custodian or brokerage firm must not be affiliated with the Advisor.  This is a big part of why Bernie Madoff was able to get away with so much, since he wore all of the hats in the transactions.
Still, if you have been a victim of a Ponzi scheme, contact a local financial attorney to file a claim and avoid being left with nothing.
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