Investor Program - Ponzi Scheme?

I have a new client who told me about a program he is running in his company.  It is a company that provides clean water to different countries, and employees individuals (non US Citizens) in those companies to run their programs on site - the company also has a US Staff.

While discussing his new 401(k) he told me about what he call an Investor Program.  In short - he asks for individuals (Employees and others as stated above) to invest in the business, and promises them an 8% ROI.   He takes their funding and utilizes it for Business Operating Expenses.   Investors can withdraw these funds at any time they like - with the gain attached (although when pressed - the business owner said he can change that ROI if need be.  Nothing is in writing - and the funds are just tracked in some random spreadsheet.

He currently has 1.4 Million in Invested Dollars from these Individuals - but not in liquid cash - just invested in the Business.  

He doesn't legally have the right to issue Bonds that I am aware of...and this feels a lot like a Ponzi Scheme.  

I asked him what he would do if everyone wanted their money at once - but he had no answer other than to liquidate the business to pay them out. 

I am fairly certain this is illegal - and my history with this individual would certainly lead me to believe that he thinks himself as not required to obey laws he doesn't agree with...so I wanted to pose this question to the group.  

Could this structure be something that could be legal?  If so, what would he need to do that make it so, or...is his best bet to stop this, get these investors paid out, and hope he never gets caught.

Any input would be appreciated.

Thanks!

Is it too late to decline this prospective customer?

This is not advice to anyone.

@Peter Gulia Is very polite.  😀

If you have concerns about legality, maybe you should consider a conversation with your own attorney about appropriate disclosure to the proper law enforcement agency.

Consider carefully, including with your lawyer’s advice, whether one might have a professional-conduct or other duty or obligation not to reveal an advisee’s (or even a prospective advisee’s) information that was imparted in confidence.

That one is aware of information that suggests a crime might not by itself set up a duty to inform law enforcement.

(But one must not conceal one’s knowledge of a felony. For example, keep a record as long as you ordinarily would under your records-retention plan, and don’t destroy or discard a record any sooner than you properly would under your records-destruction plan.)

As David Rigby suggests, get your lawyer’s advice.

This is not advice to anyone.

Sounds like a variant of the Bernie Madoff Ponzi scheme. 

https://www.fbi.gov/history/cases-and-criminals/bernie-madoff 

https://www.robertdmitchell.com/article/ponzi-schemes/

A agree with Peter.  Run, do not walk, away from this client, and consult an attorney.  Confidentiality does not cover knowledge of a crime. 

David