Ponzi Scheme Red Flags

Ponzi Scheme Red Flags

Charles Ponzi started the now infamous Ponzi scheme in the 1920’s.  He stole $15 Million dollars in 6 months by promising investors whopping returns on their investments in a postage stamp speculation.   He was lying.

So was Bernie Madoff aka The Ponz.  Bernie stole 65 Billion dollars (18 Billion plus fabricated gains) from individuals, insurance companies and many banks from all over the world.  Several celebrities were reported as victims such as Steven Spielberg, Jeffrey Katzenberg, Kevin Bacon, Kyra Sedgwick and more.  The devastation was extensive.

Many charities lost a tremendous amount of money.  Charities??  Wow..

A ponzi scheme may take on a variety of forms.  Bernie Madoff used securities investments as his cover, Charles Ponzi used postage stamps, other fraudsters use real estate investments or something else they conjure up .  Check out the recent New York Times story regarding The Pigeon King in Canada and the FBI report from February of 2015 on the collapse of a ponzi scheme in a company labelled Black Diamond.

Red Flags

  • Too good to be true
  • Investment strategy does not sound familiar to you.
  • Secretive or complex strategies
  • Seller is not licensed (Alert:  Bernie Madoff was current with all of his licenses)
  • Investment is not registered
  • Difficulty receiving payments
  • Overly consistent high returns
  • The risks are said to be very low compared to huge rewards
  • You enter into an investment with the promissory note being the only contract that you have.
  • Someone you know is very excited and making a lot of money on a  low risk, high reward investment.

Contagious greed based hoopla leading to referrals is part of the strategy.  This is also known as an ‘affinity scam.’  When you get excited about possibilities, and you trust the person recommending the investment, you may invest more and you may get others to invest into the scam as well.

It’s important to understand this psychology when your next door neighbor is tripping over himself with excitement as he shares his lucrative moneymaking secret with you.   He may brag about his 30% return on an investment that may have come from contrived fake reports.   Or if your neighbor did receive payments, that money may have  come from previous investors who also expect to get money someday, but the money may not be there when (not if) the big collapse occurs.

Ponzi Scheme Basics

Targets: Friends, Family & Associates

How:  Promise of low risk and high returns lures new investors into a pyramid type situation where the new investors provide the assets for withdrawal requests of earlier investors.  There is no actual investment and the ponzi crook is siphoning off the money.  The scheme can continue for long periods of time as long as distributions are minimal.  More information from the Security Exchange Commission (SEC) can be found here.

What if You Are a Ponzi Scheme Victim?

What if you suspect you’ve been a victim?

  • Gather your documents and create a log that records each conversation and transaction.
  • Contact the authorities.
  • You may have to contact an investment fraud attorney.

The IRS has guidance for victims of Ponzi schemes.

Multi Level Marketing companies are often pyramid based and get confused with ponzi schemes.  Find more information on the difference between MLM and ponzi schemes from the Federal Trade Commission (FTC).

 Summary

The Dogz have had pals that were involved in suspicious, too good to be true type investments recommended by fellow churchgoers.   There was both concern and hope regarding investments that were pitched as low risk and  high return.  The Dogz speculate that this situation ended badly.

Bernie Madoff must have had quite a sales pitch with supporting fake evidence to swindle intelligent people and companies worldwide.  This just shows it can happen to anybody.  Even the Dogz could have suckered for the fake evidential records if they looked official enough and if Bernie was licensed.  Not anymore, of course….we hope  😉

 Bottom Line:  Do your due diligence with extensive research before investing in anything that looks extremely profitable.

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