Travis Kelce, the Kansas City Chiefs tight end – and Taylor Swift’s husband – is one of more than 60 investors who were defrauded in a Ponzi scheme that raked in at least $25 million from victims, federal prosecutors said Sept. 15.
A Ponzi scheme, also known as a pyramid scheme, is an investment scam that pays existing investors with money collected from newer investors, according to the U.S. Securities and Exchange Commission.
Organizers pledge investments with high returns, but the money is usually not invested as promised, the SEC says. Instead, organizers pay earlier investors and keep some money for themselves. The scam’s success depends on attracting new investors with new money.
Prosecutors listed Kelce in court during the sentencing of Texas-based Siddharth Jawahar, who was given 11 years in prison and ordered to pay $31.4 million in restitution. It’s unclear how much money Kelce invested, or when.
Ponzi schemes are a common form of investment fraud, though the federal government does not track the number of annual cases. Here is how they work, and how you can avoid them.
How does a Ponzi scheme work?
Here’s a step-by-step example of how a Ponzi scheme works:
Can’t see our graphics? Click here.
Ponzi schemes are named for Charles Ponzi, who fraudulently traded in international postal reply coupons in the 1920s.
How to avoid a Ponzi scheme
Ponzi schemes attract investors because they promise high returns with little risk. The SEC says would-be investors need to verify such offers before turning over their money.
The SEC lists these red flags, common characteristics Ponzi schemes share:
Kelce was listed as an investor in a fund created by Swiftarc, which was founded by Jawahar, according to the U.S. Attorney’s Office in the Eastern District of Missouri.
Kelce’s name is not included in the indictment or judgement in the case, both of which were obtained by USA TODAY Sports.
Jawahar, 38, pleaded guilty in U.S. District Court in St. Louis to three counts of wire fraud. Jawahar collected more than $35 million from Swiftarc investors from July 2016 through December 2023 but invested only about $10 million, the attorney’s office said.
He used money from new investors “to repay older investors and to fuel an extravagant lifestyle that included flights on private planes, stays at luxury hotels and expensive outings at fancy restaurants,” according to the attorney’s office.
A 2021 Forbes article listed basketball players Tim Hardaway Jr., Gary Harris and Mason Plumlee as investors in the fund, but it wasn’t immediately clear whether they were also victims of the fraud scheme.
Contributing: Jacob Camenker
Source: USA TODAY Network reporting and research; Reuters; U.S. Securities and Exchange Commission