CFE – Financial Transactions and Fraud Schemes — Question 34

A financial manager who pressures investors to take regular payouts rather than to reinvest their profits is a red flag of a Ponzi scheme.

Answer options

• A. True
• B. False

Correct answer: A

Explanation

The correct answer is True because encouraging investors to take regular payouts instead of reinvesting profits can indicate that the manager is using new investors' funds to pay earlier investors, which is characteristic of a Ponzi scheme. The answer False does not apply here, as it overlooks this warning sign.