A financial advisor promised investors steady returns through real estate opportunities that appeared low risk. This case illustrates how Ponzi schemes can appear credible, professional, and even routine, making them especially dangerous for unsuspecting investors. 

What Is a Ponzi Scheme?

A Ponzi scheme is a type of financial fraud in which returns paid to early investors do not come from legitimate business activity or profits. Instead, those payments are funded using money contributed by newer investors. The scheme depends on a constant inflow of new money to continue operating. When new investments slow down or come to a stop, the scheme typically collapses, leaving most investors with significant losses.

Ponzi schemes often appear legitimate on the surface. They may be presented as investment opportunities tied to real estate, financial markets, startups, or other industries. Promoters frequently emphasize stability, low risk, and unusually consistent returns. This can make Ponzi schemes especially attractive to inexperienced investors or those looking for reliable income.

How Ponzi Schemes Operate

The person running the scheme typically claims to invest funds on behalf of participants, but in reality, little or no legitimate investing takes place. Early investors may receive payments that appear to confirm the success of the investment. These payments help build trust and encourage reinvestment and referrals.

As more people invest, the operator uses incoming funds to pay earlier participants and cover operating expenses. The scheme requires constant growth. 

Ponzi schemes often share recognizable patterns. Promoters may guarantee high or unusually steady returns regardless of market conditions. They may describe the investment as simple, exclusive, or low risk. Documentation may be vague, misleading, or difficult to verify. Another red flag is pressure to invest quickly or to use retirement savings, loans, or lines of credit. Some schemes specifically target individuals who are not accredited investors, presenting the opportunity as accessible and inclusive while downplaying the risks. 

A Modern Example: The Drive Planning Case

A recent and high-profile example of a Ponzi scheme involved Drive Planning, a Georgia-based financial advisory group led by Todd Burkhalter. From 2020 through 2024, Drive Planning promoted real estate investment opportunities that promised consistent and guaranteed returns. 

Investors were told their funds would be used for short-term real estate bridge loans or tax lien investments and that their money was fully secured by real assets. In reality, prosecutors determined that the operation was a Ponzi scheme from the beginning. In typical Ponzi scheme fashion, investor funds were redirected to pay earlier investors, commissions, and Burkhalter’s personal expenses.

Court records show that investor money funded luxury purchases such as a yacht, high end vehicles, real estate, and travel. More than 2,000 investors lost about $380 million. Burkhalter pleaded guilty to wire fraud and faces a potential prison sentence of more than 17 years.

Ponzi Schemes of All Sizes

While some Ponzi schemes involve hundreds of millions or even billions of dollars, others operate on a much smaller scale. An example is the case of Ian Bick, an 18-year-old event promoter in Connecticut who used new investor funds to repay earlier business loans, defrauding investors of almost $500,000. 

At the largest end of the spectrum are notorious cases such as Bernie Madoff’s decades-long scheme, which defrauded thousands of investors of billions of dollars. Other well-known cases include those involving business leaders, religious organizations, and even law firms. These examples demonstrate that Ponzi schemes can exist in many industries and can be run by individuals who appear highly credible.

Ponzi schemes persist in part because they exploit trust and social networks. Early investors who receive payments may unknowingly help recruit others. The appearance of success can be persuasive, especially when the promoter seems confident, experienced, or well connected. 

Another reason is weak financial literacy. Many investors do not fully understand how legitimate investments generate returns or how to verify claims. When combined with promises of easy income and limited downside risk, this lack of understanding can make fraudulent schemes difficult to detect until it is too late.

Consequences

Operating a Ponzi scheme is a federal crime that can result in long prison sentences, substantial fines, and civil penalties. Regulatory agencies such as the Securities and Exchange Commission and the Federal Bureau of Investigation play key roles in identifying, investigating, and prosecuting these cases. For investors, the consequences are often life-altering. Funds are frequently unrecoverable, and victims may lose retirement savings, homes, or financial security. Court appointed receivers attempt to recover assets, but repayments are usually only a fraction of the original losses.

In the Classroom

This article can be used to discuss financial literacy (Bonus Chapter B/Chapter 15 Appendix: Financial Literacy).

Discussion Questions

1.     How does a Ponzi scheme differ from a legitimate investment business?

2.     What specific warning signs were present in the Drive Planning case that could have alerted investors to potential fraud? 

3.     How do trust and social networks contribute to the spread of Ponzi schemes?

This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.