It is not a Ponzi Scheme by definition but there is a well known (well if your an accountant) accountancy term used for this type of fraud, it is one of the first "schemes" you learn to look out for as an auditor ;-)
https://en.wikipedia.org/wiki/Teeming_and_lading
It usually starts will all good intentions ie due to cash flow problems money is "borrowed" with the intention of paying it back but it can quickly escalate from there.
This I feel is a classic case of "Teeming and Lading" but using client funds rather than company funds :wink:
I fear it will only get worse until it falls over, eventually.
It is definately fraud and if it can be linked to client funds it is even more serious as the Directors liabilities are even more onerous. One tactic I have used in the past in this kind of scenario (business not personal) is to report your concerns of fraud to the 3rd parties bank. They have a responsibility to investogate fraud (even better if you state your concerns are money laundering) and they may freeze the companies bank account. You have to be careful with this in this scenario though as it may shoot yourself in the foot ie they won't be able to pay you back. A more practical route may be to try to find out who their professional indemnity insurers are and report the matter to them, again may not work in this type of case.
I would report the matter to the police as fraud "Teeming and Lading" using client funds and tell them that you have done that. I think I've stated on here before that the police won;t be interested but your objective is to get to the front of queue so you are the next person paid back.
I would also deifnately report the wife to the local council for fraud whilst a director of this company. I would feel no guilt at all in doing that. The coucil will have a "whistle blowers" policy.
ps I would be very wary of following any "legal" advice on any internet forum, seek proper advice if you feel the need ie I have a feeling the legalalities of this are not as simple or logical as people would imagine. That is partly why he will have got away with it for so long, others will have sought legal advise and probably realised its not a strightforward scenario.
Ps
it looks like he uses CCF Accountancy Ltd,
http://www.ccfaccountancy.co.uk/
I would contact them and state you suspect Teeming and Lading of client funds are being carried out by this client of theirs. Again just be a nuisance ;-)