This page is for people who have been accused. If you are an investor looking to recover money, this is not the page you need — most of what ranks for these terms is written by investor-recovery and clawback firms, whose interests are directly opposed to a defendant’s. Everything below is written from the defense side.
There is no federal “Ponzi scheme” statute. No provision of the United States Code uses the term as an offense. What the government charges instead is a combination — usually wire fraud under 18 U.S.C. § 1343, securities fraud under § 10(b) and Rule 10b-5 or under 18 U.S.C. § 1348, money laundering under §§ 1956 and 1957, and conspiracy under § 1349 — together with a parallel SEC enforcement action and, frequently, a receivership.
The single most consequential issue in these cases is not liability. It is the loss figure, because the guideline range under U.S.S.G. § 2B1.1 is driven by it and because the rules that govern how it is computed in investment-scheme cases are specific, counter-intuitive, and frequently misapplied.
What a “Ponzi” case is actually built from
| Charge | Statute | Maximum | What it requires here |
|---|---|---|---|
| Wire fraud | 18 U.S.C. § 1343 | 20 years; 30 if a financial institution is affected or a declared disaster is involved | A scheme to obtain money by material falsehood, plus an interstate wire — an email, a transfer, a card charge |
| Securities fraud | 15 U.S.C. § 78j(b) + Rule 10b-5, penalized by § 78ff | 20 years | Requires that the interest sold be a security — the Howey question |
| Securities and commodities fraud | 18 U.S.C. § 1348 | 25 years | Limited to securities of registered or reporting issuers, and to commodities futures and options |
| Money laundering | 18 U.S.C. § 1956 / § 1957 | 20 / 10 years | § 1957 needs only a monetary transaction over $10,000 in criminally derived property |
| Conspiracy | 18 U.S.C. § 1349 | Same as the object offense | No overt act required |
| SEC civil enforcement | 15 U.S.C. § 78u | Injunction, disgorgement, penalties, bars | Preponderance of the evidence; ten-year reach for scienter-based remedies |
Table: how an investment-fraud prosecution is actually assembled. Because there is no Ponzi statute, the charging decisions are choices — and each carries different elements.
Ponzi, pyramid, affinity: the distinctions matter
These three terms are used interchangeably in ordinary speech and describe different things.
A Ponzi scheme is an investment arrangement in which returns paid to existing investors come from money contributed by new investors rather than from genuine profits. There is a purported investment activity; it is either not occurring or not generating the represented returns. The defining feature is the source of the payouts.
A pyramid scheme pays participants for recruiting other participants. The compensation structure itself is the mechanism: money flows upward from new recruits to those above them. There may be a product, but the economics are driven by recruitment rather than by sales to end users. Pyramid cases are frequently charged as wire fraud and, where the participation interests qualify, as securities fraud.
Affinity fraud is not a structure at all — it is a targeting method. It describes a scheme, of whatever structure, marketed through a shared community: a congregation, an ethnic or immigrant community, a profession, a military unit, an alumni network. Prosecutors and regulators use the term because it explains why due diligence did not happen; it does not by itself add an element or an enhancement.
Why this matters to a defendant: the government’s narrative frequently begins by labeling the arrangement. Whether a business that ran out of money and paid an early investor from later receipts is a Ponzi scheme or a failed business is not a matter of nomenclature. It is a question about intent at the time of the representations, and it is the central factual dispute in a great many of these cases.
On this page
Is it a security? The Howey question decides which statutes apply
If the interest sold was not a security, the securities charges fail. The wire fraud charge does not — which is why the government almost always has one — but the securities counts, the SEC action, and the industry bars all depend on the answer.
The test is from SEC v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946): “an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.”
Four elements:
- an investment of money;
- in a common enterprise;
- with an expectation of profits;
- derived from the efforts of others.
Howey also holds that “[t]he test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others,” and that if it is satisfied, “it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value.” The definition “embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.”
That flexibility cuts both ways. It means the government can reach arrangements that carry no certificate and look nothing like stock — interests in real estate, in equipment, in lending programs, in funds, in digital assets. It also means the question is genuinely litigable in any case where investors did substantial work themselves, where the arrangement was structured as a loan or a joint venture rather than a passive investment, or where the promised return came from the investor’s own efforts.
The wider framework — including how the Howey analysis is being applied to digital assets — is set out on our hub page, linked below.
Loss: where these cases are actually decided
Every investment-fraud sentencing turns on U.S.S.G. § 2B1.1, and the loss table runs from 2 additional offense levels at more than $6,500 to 30 levels at more than $550,000,000. In a scheme with many investors, the difference between one loss theory and another is frequently the difference between a sentence measured in months and one measured in years.
Three rules in the current Manual govern the computation, and they need to be read together.
1. Loss is the greater of actual or intended loss
That definition now appears in the Notes to Table within § 2B1.1(b)(1) itself, not in commentary. “Actual loss” is “the reasonably foreseeable pecuniary harm that resulted from the offense.” “Intended loss” is “the pecuniary harm that the defendant purposely sought to inflict” and “includes intended pecuniary harm that would have been impossible or unlikely to occur.”
2. Credits against loss — but only before detection
Application Note 3(D) to § 2B1.1 provides that loss shall be reduced by “[t]he money returned, and the fair market value of the property returned and the services rendered, by the defendant or other persons acting jointly with the defendant, to the victim before the offense was detected.”
The Note then defines detection precisely, and the definition is the part that matters: “The time of detection of the offense is the earlier of (I) the time the offense was discovered by a victim or government agency; or (II) the time the defendant knew or reasonably should have known that the offense was detected or about to be detected by a victim or government agency.”
Two consequences. Money genuinely returned to an investor before detection reduces the loss attributable to that investor. And repayments made after the defendant knew the scheme was about to be discovered do not — which is why the timing of the first investor complaint, the first regulatory inquiry, or the first internal alarm is a date worth establishing exactly.
3. The Ponzi special rule — the one that surprises people
Application Note 3(E)(iv), “Ponzi and Other Fraudulent Investment Schemes,” provides:
“In a case involving a fraudulent investment scheme, such as a Ponzi scheme, loss shall not be reduced by the money or the value of the property transferred to any individual investor in the scheme in excess of that investor’s principal investment (i.e., the gain to an individual investor in the scheme shall not be used to offset the loss to another individual investor in the scheme).”
Read carefully, that rule does two distinct things.
- Payments above an investor’s principal do not offset anyone’s loss. An investor who put in $100,000 and received $180,000 has a “gain” of $80,000, and that $80,000 cannot be netted against the losses of other investors. The scheme’s total loss is not reduced by the winners’ winnings.
- It does not abolish the general credits rule. The special rule addresses amounts “in excess of that investor’s principal investment.” Amounts returned up to principal, before detection, are governed by Note 3(D) — the ordinary credits-against-loss provision — and remain creditable.
That distinction is the most valuable single point on this page, and it is regularly collapsed. The government’s initial loss computation in these cases is frequently the gross amount raised. It should not be. The correct figure begins with principal invested, subtracts pre-detection returns of principal, and adds nothing back for the winners’ gains.
A verification note. The lettering of these provisions has moved. Older decisions cite the credits rule as Note 3(E)(i) and the Ponzi rule as Note 3(F)(iv). In the Guidelines Manual effective 1 November 2025 they are Note 3(D) and Note 3(E)(iv) respectively. Anyone relying on a citation from a pre-2025 opinion or brief should check the current lettering before filing.
Related figures that are not the same number
- Restitution under the Mandatory Victims Restitution Act is measured by the victim’s actual loss, and is not the same figure as guideline loss.
- Forfeiture under 18 U.S.C. § 982 reaches property “involved in” the offense, which is broader still. A defendant can owe restitution and forfeiture on overlapping dollars.
- Disgorgement in the parallel SEC case is limited to net profits, for victims (Liu v. SEC, 591 U.S. 71 (2020)).
Four different numbers, four different rules. Treating them as one is a common and expensive error.
Amendment 836, effective 1 November 2025, struck § 2B1.1 Application Note 21 in its entirety — including the downward-departure provision for cases in which the offense level “substantially overstates the seriousness of the offense” — and Chapter Five, Part H is now listed in the Manual as “[Deleted].” Mitigation arguments in these cases must be framed as a variance under 18 U.S.C. § 3553(a). The facts are unchanged; the vehicle is not. Our federal sentencing pages set out how that argument is built.
We do not predict sentences and we do not publish ranges for a reader’s case.
The other guideline drivers
Loss is the largest single input but it is not the only one, and in investment-fraud cases three others recur.
Victims and financial hardship — § 2B1.1(b)(2). Two levels if the offense “involved 10 or more victims,” was committed through mass-marketing, or “resulted in substantial financial hardship to one or more victims.” Four levels for substantial financial hardship to five or more victims. Six levels for 25 or more. Investment schemes routinely have dozens or hundreds of investors, so this adjustment is nearly automatic — but “substantial financial hardship” is a defined concept requiring evidence about individual victims, not an inference from the number of them.
Sophisticated means — § 2B1.1(b)(10). Two levels, with a floor of level 12, where the offense “otherwise involved sophisticated means and the defendant intentionally engaged in or caused the conduct constituting sophisticated means.” This is contested in a large share of these cases because ordinary business infrastructure — an LLC, a second account, a fund administrator, an offshore entity used for a legitimate reason — gets recharacterised as sophistication. The guideline requires that the defendant intentionally engaged in or caused it.
Role — Chapter Three. An aggravating-role adjustment under § 3B1.1 for organizers and leaders, and an abuse-of-trust adjustment under § 3B1.3 where the defendant held “a position of public or private trust … characterized by professional or managerial discretion.” An investment adviser or fund manager will usually face the latter; a salesperson generally should not.
The interaction of these with the loss table is why a case can move from a level in the twenties to one in the thirties on findings that were never seriously litigated. Each is a separate objection with its own evidentiary requirements.
What the government actually has
These cases are built almost entirely from documents, and the documents exist before anyone is interviewed.
Bank records. The complete flow of funds, obtained by subpoena from every institution involved. A forensic accountant traces investor deposits against outflows and identifies which payments came from which receipts. This tracing analysis is the heart of the government’s case and the heart of the loss computation.
Investor communications. Offering materials, subscription agreements, account statements, emails and text messages. The comparison the government will put to the jury is between what investors were told and what the bank records show — side by side, in a chart.
The account statements. In a great many of these cases the statements sent to investors are the central exhibit, because they report returns that the accounts cannot support. Who prepared them, from what data, and on whose instruction is therefore a critical question, and it is frequently the difference between a principal and a participant.
Investor testimony. Individual investors testify to what they were told. Their accounts are given years later, are shaped by the loss, and frequently differ materially from the written offering materials they signed — which is a legitimate and important line of cross-examination.
The receiver’s report. Where a receivership exists, the receiver’s forensic accounting is usually adopted wholesale by the government. It was prepared for a different purpose, on assumptions that were never tested adversarially, and it should be examined rather than accepted.
Where these cases are actually defended
Intent at the time of the representations. This is the case. A venture that was genuine when the money was raised and failed afterwards is not fraud, however bad the ending looks. The government proves intent by pointing to the pattern — new money paying old investors, statements that did not match the accounts, personal spending. The defense is contemporaneous: what the business was actually doing, what the operator believed, what the records showed at the time, and when the shortfall arose.
The line between a failing business and a scheme. A business that experiences a liquidity crisis and pays a redemption from incoming receipts has done something that looks identical, in a spreadsheet, to a Ponzi payment. What distinguishes them is whether there was a genuine underlying enterprise and whether the operator believed the represented returns were achievable. That is a factual question, and it is answered from bank records, operating documents and third-party dealings — not from the government’s characterisation.
Reliance on professionals. Accountants, auditors, outside counsel, fund administrators, and the compliance apparatus of a broker-dealer. Where a professional reviewed the structure and did not object, that is intent evidence of the first order.
Role. In multi-participant cases, the difference between the person who designed the arrangement and a salesperson who believed the pitch is enormous — for liability, for relevant conduct, and for role adjustments under Chapter Three. Sales agents paid on commission who received the same reporting the investors did are in a materially different position from the principals.
The loss computation. Set out above, and worth as much attention as everything else combined.
The security question. Howey, and whether the securities counts and the SEC case attach at all.
The receivership. In many of these matters a court appoints a receiver over the entity, who takes control of the records and pursues clawbacks against investors who were net winners. The receiver is not the prosecutor, but the receiver’s forensic accounting frequently becomes the government’s loss theory. Access to the receiver’s underlying work — the assumptions, the classifications, the source data — matters, and is not automatic.
If the money has stopped and investors are asking questions
The period between the first investor complaint and the first subpoena is short, and almost every serious mistake in these cases is made in it.
- Stop making representations. Statements made to investors after the operator knows the position — reassurances, projections, promises of imminent repayment — are the most damaging evidence in the case, because they are made at a point when the government can prove exactly what was known.
- Do not move money. Transfers after the problem is known are charged as money laundering, and asset transfers to family members are charged as fraudulent conveyances in the civil case and as obstruction in the criminal one.
- Preserve everything. Records, devices, accounts, the accounting system. Deletion after notice converts a defensible case into an obstruction case, and it is the single most common self-inflicted wound in this area.
- Do not repay selectively. Paying some investors and not others after the shortfall is known creates preference problems in a later receivership or bankruptcy, and is read by prosecutors as an attempt to buy silence.
- Get independent counsel — not the fund’s counsel. The entity’s lawyer represents the entity. Where a receiver is appointed, the entity’s privilege passes to the receiver, who may waive it.
- Establish the detection date. Under U.S.S.G. § 2B1.1 comment. (n.3(D)), returns of principal made before detection reduce loss, and detection is defined by reference to when a victim or agency discovered the offense or when the defendant knew or should have known discovery was imminent. That date is worth pinning down with contemporaneous evidence, and it becomes much harder to establish later.
The parallel proceedings
An investment-fraud matter routinely produces four proceedings at once:
- The criminal case, brought by the Department of Justice;
- The SEC civil enforcement action, seeking an injunction, disgorgement, penalties and bars — proved by a preponderance, with a ten-year reach for scienter-based remedies under 15 U.S.C. § 78u(d)(8);
- A receivership or bankruptcy, in which a fiduciary controls the entity’s assets and records; and
- Private civil litigation by investors, and clawback actions against net winners.
Everything said in any of them is available in the criminal case. The Fifth Amendment problem this creates — an adverse inference may be drawn in the civil proceedings, but testimony given there can be used criminally — is the same structural problem described on our securities fraud attorney hub, and the SEC-specific mechanics are on our sec defense lawyer page. Sequencing these, and seeking a stay of the civil matters, is usually the first thing counsel does.
Money laundering counts are near-automatic in these cases, because the money moved through accounts: § 1957 requires only a monetary transaction over $10,000 in criminally derived property, with no concealment element at all. That distinction is set out on our money laundering attorney page. The wider federal framework — the § 2B1.1 loss table, the conspiracy statutes, and what Amendment 836 changed — is on the white collar crime lawyer hub. Where the alleged scheme involved trading on inside information rather than raising money, see insider trading lawyer. Two further counts recur: tax charges, because management fees and distributions taken from investor money are income whether or not the fund was real, and bank fraud where account applications or credit facilities carried the same figures given to investors. Where the money came out of an entity the defendant served rather than from outside investors, the government charges it as embezzlement instead.
Where a conviction has already been entered, direct review runs through federal appeals and claims outside the trial record through a § 2255 motion. Elizabeth Franklin-Best, P.C. is a federal criminal defense attorney practice representing people accused in federal investment-fraud matters nationwide.
Frequently Asked Questions About Investment Fraud and Ponzi Schemes
Is there a federal Ponzi scheme statute?
No. No provision of the United States Code creates a “Ponzi scheme” offense. These cases are charged under general statutes — wire fraud under 18 U.S.C. § 1343, securities fraud under § 10(b) and Rule 10b-5 or under 18 U.S.C. § 1348, money laundering under §§ 1956 and 1957, and conspiracy under § 1349 — usually alongside an SEC enforcement action.
What is the difference between a Ponzi scheme and a pyramid scheme?
A Ponzi pays returns to existing investors out of money from new investors, while representing that the returns come from a genuine investment activity. A pyramid pays participants for recruiting other participants, so the economics run on recruitment rather than on sales to end users. Affinity fraud is neither structure — it describes marketing a scheme through a shared community, and it explains why diligence did not happen rather than adding any element.
My business failed and I paid an early investor from later money. Is that a Ponzi scheme?
That is the central factual question in a great many of these prosecutions, and it turns on intent at the time of the representations — not on how the ending looked. A genuine business that suffered a liquidity crisis and covered a redemption from incoming receipts has done something that resembles a Ponzi payment in a spreadsheet. Whether there was a real underlying enterprise, and whether the operator believed the represented returns were achievable, is answered from contemporaneous records rather than from the government’s label.
Does it matter whether what I sold was a “security”?
Substantially. If the interest was not a security, the securities counts and the SEC action do not attach — though the wire fraud count will remain. The test is SEC v. W.J. Howey Co., 328 U.S. 293 (1946): an investment of money in a common enterprise with an expectation of profits derived from the efforts of others. It is a functional test and it reaches arrangements with no certificates at all, but it is genuinely contestable where investors did substantial work themselves or the arrangement was structured as a loan or joint venture.
How is “loss” calculated in a Ponzi case?
Under U.S.S.G. § 2B1.1, loss is the greater of actual or intended loss. Two commentary provisions govern the arithmetic. Application Note 3(D) requires loss to be reduced by money returned to a victim “before the offense was detected” — detection being the earlier of discovery by a victim or agency, or the point at which the defendant “knew or reasonably should have known” detection was imminent. Application Note 3(E)(iv) provides that in a fraudulent investment scheme, loss “shall not be reduced by the money … transferred to any individual investor in the scheme in excess of that investor’s principal investment.” Those are different rules: pre-detection returns of principal are creditable; payments above principal to net winners are not netted against other investors’ losses.
Doesn’t money I paid back reduce the loss?
Up to an investor’s principal, and if paid before detection, yes — that is exactly what Application Note 3(D) provides. What is not creditable is the excess above principal paid to net winners, under Note 3(E)(iv). Government loss computations in these cases frequently begin with the gross amount raised, which is not the correct starting point, and the difference can be several offense levels. Getting that number right is the highest-value work in the case, and it is federal criminal defense work that has to start well before the presentence report.
Is the restitution figure the same as the guideline loss figure?
No, and neither is the same as forfeiture or as SEC disgorgement. Restitution under the Mandatory Victims Restitution Act is measured by victims’ actual loss. Forfeiture under 18 U.S.C. § 982 reaches property “involved in” the offense, which is broader. SEC disgorgement is capped at net profits and is to be awarded “for victims” — Liu v. SEC, 591 U.S. 71 (2020). Four numbers, four rules.
What is a receiver, and does the receiver work for the prosecutors?
A receiver is a fiduciary appointed by a court, usually in the SEC action, to take control of the entity’s assets and records, marshal what can be recovered, and distribute it. The receiver does not work for the prosecutors, but the receiver’s forensic accounting frequently becomes the government’s loss theory — which makes access to the underlying assumptions, classifications and source data worth pursuing rather than accepting. Money the receiver traces between accounts is also what supports the money laundering counts.
I was a salesperson, not the person who ran it. Does that matter?
It can matter a great deal. Liability turns on what you knew and agreed to, and a sales agent who received the same account statements the investors received is in a materially different position from a principal who prepared them. It also matters to relevant conduct — how much of the scheme’s loss is attributable to you — and to role adjustments under Chapter Three of the guidelines. Note, though, that under § 1349 a conspiracy conviction requires no overt act and carries the same maximum as the completed offense, so “I only sold it” is not by itself an answer.
How much prison time do these cases carry?
The statutory maximums are 20 years for wire fraud (30 where a financial institution is affected), 20 under 15 U.S.C. § 78ff, 25 under 18 U.S.C. § 1348, and 20 or 10 for money laundering. What is actually imposed is driven by the guideline calculation under U.S.S.G. § 2B1.1 — overwhelmingly by the loss figure and the number of victims — and by the 18 U.S.C. § 3553(a) factors. We do not estimate ranges for individual cases, and the loss figure is contested in almost every one of them. How the calculation is assembled, and how mitigation must now be framed after Amendment 836, is set out in our federal sentencing pages.
What is affinity fraud, and does it add a charge?
No — it is a description of how a scheme was marketed, not a structure or an offense. The term refers to promoting an investment through a shared community: a congregation, an ethnic or immigrant community, a profession, a military unit, an alumni network. Regulators use it because it explains why ordinary diligence did not happen. It does not add an element, and it is not itself a guideline enhancement — though the facts underlying it will usually be relevant to the number of victims and to whether the offense caused substantial financial hardship under U.S.S.G. § 2B1.1(b)(2).
Why does the indictment charge money laundering as well?
Because the money moved through accounts, and 18 U.S.C. § 1957 requires nothing more than a knowing monetary transaction, through a financial institution, in criminally derived property worth more than $10,000 that in fact came from a specified unlawful activity. There is no concealment element and no design element. Depositing investor funds and spending them can complete it, which is why these counts are close to automatic in investment-fraud indictments.
Will there be a receiver, and what does that mean for me?
Frequently, in the parallel SEC action. A receiver takes control of the entity’s assets and records, funds the receivership from the estate, and pursues clawbacks against investors who received more than they put in. Practically, that means the defendant loses access to the records needed to defend the case and to funds that might have paid for counsel, while the receiver’s forensic accounting becomes the government’s loss theory. Obtaining access to the receiver’s underlying work — the assumptions, the classifications, the source data — is worth pursuing early, and it is not automatic.
Can the SEC still pursue me if the criminal case ends?
Yes. The SEC’s burden is a preponderance of the evidence, an acquittal does not resolve the civil action, and 15 U.S.C. § 78u(d)(8) gives the Commission ten years for scienter-based disgorgement and for “any equitable remedy, including for an injunction or for a bar, suspension, or cease and desist order.” Industry bars and officer-and-director bars survive independently of the criminal outcome. What the Commission does between opening a file and seeking those remedies is set out on our SEC investigation defense page.
By Elizabeth Franklin-Best, Esq. — Principal Attorney & Founder, Elizabeth Franklin-Best, P.C.
Accused of Investment Fraud?
Loss calculation frequently drives these sentences more than the conduct itself, and it is contested far too late in most cases.
Representation begins with a paid, one-hour consultation — a working session in which we review where matters stand and tell you honestly what options remain. We do not promise outcomes.
Reviewed for legal accuracy by Elizabeth Franklin-Best, Esq., Principal Attorney·September 2026