Fraud Alert – Beware of Ponzi Investment Scams
“Humpty Dumpty sat on a wall;
Humpty Dumpty had a great fall.”
The childhood litany quoted above could be an anthem for caution in today’s troubled economic world. Bernard Madoff revealed, in December 2008, that he had been running a Ponzi scheme that may result in losses of 50 billion dollars. Ponzi scams can be found in every state and community.
Poor economic conditions make people desperate to retain what they have, find a way to recoup what they’ve lost, or get an edge on exploiting the poor conditions. These thoughts are fertile ground for Ponzi schemes. When someone offers a ‘pot at the end of the Rainbow’ midst a downpour of economic trouble, many jump on-board.
The founder of a Ponzi scheme may be crooked from the get-go, may begin legitimately and then find things heading south, or may be deluded into believing they have found the investor’s secret, the talisman that will deliver from the storm for those ‘wise enough’ to partner in their plan. Interestingly, Ponzi founders always pay themselves first, and they are paid well and live well, before making any type of payment to investor’s funds. When these ‘earnings’ are given to a loved one, even prosecution may leave the money ‘untouchable.’
Many Ponzi schemes exploit known affiliations; investors are found among family, friends, neighbors, or members of a club, social network, faith community or ethnic group. They begin with a basis of known trust. There is a common belief that a known individual would not cause harm. Furthermore, often there is a snugness, perhaps even arrogance, that the investor has found an unknown secret to riches that others have not been astute enough to find; it is not readily shared with others.
We’re in tough economic times…don’t make things worse by becoming involved in a Ponzi investment scheme. Remember that almost all have suffered financial difficulty and we all trust that hard work and the American spirit will return us to economic wellness.
Here are some tips:
- Beware of any investment offer making unrealistic statements concerning returns or promises of guaranteed interest rates;
- Don’t rely on information that comes from your investor; check out stock prices and rates of return by doing your own research. Remember that victims are often lulled asleep by early payment of high dividends that are required or encouraged to be reinvested; consequently, gains are never seen and the deception can continue unabated;
- Demand to see ‘hard copy’ stock or bond certificates to ensure that real investments have been made;
- Try to get an independent assessment or Annual Report concerning the investment company where you place your funds and don’t take “We can’t provide that!” as an acceptable answer;
- Delays on providing information, evasive answers, and excuses rather than good customer service can be ‘Red Flags’;
- Beware of ‘free gifts’ or other incentives, such as a free luncheon or dinner, in conjunction with an investment opportunity;
- Use extreme caution when an investment offer must be accepted ‘immediately’ or ‘before leaving a presentation’; remember, Ponzi founders are primarily marketers, charismatic, and great salespersons;
- Poor economic times spawn a ‘beat the herd’ mentality; it is a time to act wisely, do your homework, and remember there is ‘no free lunch.’
Source: District Attorney Scott Storey, Office of Jefferson/Gilpin Counties, Colorado
To report fraud, ask a question, or schedule a ‘Power Against Fraud’ seminar, call: 303-271-6980
