What is the Difference Between Embezzlement and Ponzi Schemes

Financial fraud is a pressing issue that is often the result of economic hardship. Regardless of the reason for its occurrence, fraud is a serious crime that is punishable by up to 14 years in jail in Ontario. Among the many types of financial fraud, embezzlement and Ponzi schemes stand out as two prevalent forms that can significantly impact individuals or organizations. While these schemes differ in their execution, both can lead to devastating consequences.

Understanding the key differences between embezzlement and Ponzi schemes is essential, especially when preparing for a lawyer consultation if you’ve been affected by one of these scams. If you believe you’ve been impacted by either or have been charged with fraud, contact the experienced fraud lawyers at Karrass Law. 

Robert Karrass and our criminal defence lawyers are ready to guide you through this challenging time—contact us today to book a consultation.

What is Embezzlement?

Embezzlement is a crime in the province of Ontario and refers to the Act of intentionally misassigning assets that are meant to be used for a specific purpose. In cases of embezzlement, these funds or assets are utilized incorrectly and often for personal gain.

This crime is often committed by individuals who are assigned to safeguards and spend an organization’s money and intentionally misspend it for their own financial gain. Oftentimes, embezzlers may create bills, receipts or invoices for fake purchases when they take the money for personal use. 

Common examples of embezzlement include:

• Misuse of Company Credit Cards: When an employee utilizes a corporate/business credit card for personal expenses, such as vacations, shopping, or dining out, when it is intended to be used for work-related expenses. 
• Expense Reimbursement: An employee submits false or inflated expense reports to claim reimbursements for non-existent or smaller purchases.
• Diverting Donations: An individual at a non-profit organization uses donations for personal expenses rather than allocating them to charitable causes.

What is a Ponzi Scheme?

A Ponzi scheme is a form of fraud in the Province of Ontario and refers to the Act of paying off investors of a business with money from other investors. 

Typically, Ponzi Schemes operate as follows: 

• The organizer of the Ponzi scheme seeks investors for some kind of illegitimate business and typically attracts investors by promising high returns. 
• As new investors invest in the scheme, the operators will use their money to pay the older investors in order to make it appear as if the business is highly profitable.
• This cycle then continues until the scam operators run out of new investors or once legal authorities or investors have caught on to the Ponzi scheme. 

As this entire scheme perpetuates, the scam operators will continue to pocket a large amount of money from the investors, making it highly lucrative for the scammer.

Key Differences Between Embezzlement and Ponzi Schemes

Although both embezzlement and Ponzi schemes are similar, they have some key differences that set them apart from each other. 

• Embezzlement involves the misuse of assets that one already has access to, whereas Ponzi schemes involve deceiving people into gaining access to their monetary funds. 
• Embezzlement often targets one specific person or organization, whereas the goal of Ponzi schemes is to continuously scam a growing group of “investors.”
• Embezzlement schemes are a “secret scam” that occurs when nobody is aware of what is going on. A Ponzi scheme is a form of fraud that is fronted by an active business that is publicly advertising high returns. 

Consequences of Both Embezzlement and Ponzi Schemes

Given the fact that both embezzlement and Ponzi schemes are forms of financial fraud, both are punishable offences. The Criminal Code of Canada outlines fraud as:

• 380 (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,

Based on this definition, anyone who runs an embezzlement scam or Ponzi scheme is guilty of fraud and can be prosecuted and subjected to up to 14 years of imprisonment. 

Protect Yourself Against Embezzlement and Ponzi Schemes with Karrass Law

Understanding the difference between embezzlement and Ponzi schemes is crucial for recognizing and addressing financial crimes effectively. Whether you’ve been a victim of financial fraud or are facing allegations, seeking guidance from a civil litigation lawyer or fraud lawyer is essential to protecting your rights and interests.

A consultation with the Karrass Law team can provide you with tailored advice and a clear path moving forward. Contact the skilled defence lawyers at Karrass Law today to ensure you have the support you need to protect your interests. 

Book a Consultation Today