There are several investments that turn out to be fraudulent schemes in which investors invest their hard earned funds and lose those funds because there was never in fact an actual investment that produced profits. Generally, those frauds are known as Ponzi Schemes.
Taxpayers who lose money in Ponzi Schemes may enjoy a tax advantage and recoup some of their lost funds by deducting their losses as financial theft losses. Deductions may be used against income that is being earned by the defrauded taxpayer, both before and after the fraud is discovered. There are several important rules that must be followed to enjoy this tax benefit.