In a recent update, the ATO stressed the importance of individuals protecting themselves from Ponzi schemes by being aware of some of the red flags and checking online resources about schemes from the ATO and ASIC.
The ATO explained that a Ponzi scheme is a form of fraud that attracts investors by promising high returns with little to no risk.
“New investors bring in money which pays dividends, or other types of payments, to existing investors. There is no actual investment offered by scheme operators,” it stated.
The ATO said that some of the warning signs of a Ponzi scheme include the rate of return looking too good to be true and a promise of consistent returns regardless of market conditions.
“Other warning signs might include the logistics of the investment being too complicated to explain, someone you know trying to recruit you and encouraging you to make a quick decision.”
The ATO noted that existing investors in a Ponzi scheme receive dividends funded by new investors are unlikely to suspect that it is not a genuine investment.
“This encourages these investors to target friends, family and other acquaintances into the scheme, often attracting more vulnerable groups and individuals with the promise of quick returns on their investment,” it warned.
“In some cases, recruiters attract new investors by saying their investment in the scheme is a way to avoid tax.
“Ponzi schemes need new investors and their money to survive. When scheme promoters fail to attract new investors, the scheme will collapse, leaving most new investors out of pocket and with little to no recourse to recoup their losses.”
The ATO said it is committed to disrupting all forms of financial fraud in the community that causes harm and undermines the integrity of the tax system, including Ponzi schemes.
“If you are unsure if a scheme is a Ponzi scheme, you can get a second opinion from a trusted financial or legal adviser,” the Tax Office said.
