Florida readers have likely heard of a fraudulent investment arrangement called a Ponzi scheme. A typical scenario involves a fraudulent broker or finance manager luring investors with promises of high returns or pre-initial public shares in an exciting new company. Instead of applying investors’ money to purchase those shares, however, the broker will use the funds for personal uses and to pay off earlier investors.

Unfortunately, too many clients in Florida and across the country continue to be duped by brokers or managers who do not explain the risks of securities, fail to disclose other material information about the investments, or who misappropriate investor funds in Ponzi-like schemes. We recently wrote about the most recent example, a man who had promised pre-initial public offering shares of Facebook but used only $600,000 of the $13.2 million he raised to actually acquire shares.

In today’s story, two men lured approximately $23.5 million from more than 100 investors in a Ponzi scheme named RAHFCO Hedge Funds. The men claimed their investments traded options and futures on the S&P 500. When incoming funds could no longer pay off older investors, the scheme collapsed.

One of the defrauded investors is Miami Heat basketball player Mike Miller, who acted on his early suspicions by consulting with a securities fraud attorney. As a result of the lawsuits he has filed, Miller may be able to recoup some of his investment. Other investors, however, may not be so lucky.

This post illustrates the importance of proactively consulting with a securities fraud and stockbroker misconduct attorney. The fiduciary duty expected of brokers and financial managers requires them to disclose a substantial amount of information. With the help of an attorney, an investor can do a thorough background check and discover whether an investment might have hidden risks.

Source: mitchellreupblic.com, “Mike Miller seeking to recover lost millions,” Chris Mueller, March 7, 2013

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