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ALEX MCVEIGHSTAFF NEWSWRITER
TOM SAKASHSTAFF NEWSWRITER

News Now

Consumer
Know how to spot a Ponzi scheme
NEW YORK (1/7/09)--With widespread anxiety plaguing investors these days, the promise of high returns to make up for recent losses is enticing. Ponzi scam artists are all too happy to lure you in, as evidenced by Bernard Madoff’s alleged $50 billion theft from unsuspecting investors (The New York Times Dec. 27). Increasingly sophisticated con artists are replicating a type of fraud first documented in 1719 when John Law promised stock returns of more than 40% a year in a French company trading up the Mississippi River. And in the 1920s, Charles Ponzi bilked investors by promising a 50% return on their investment in postal coupons. Ponzi schemes fall apart when the initial operator--instead of investing victims’ funds--pays “dividends” to early investors with money from subsequent investors (www.FBI.gov). In all cases, either the operator flees with all the proceeds, or the pyramid collapses when the operator cannot pay investors who enter the scheme later. Know how to avoid becoming a victim of Ponzi or other investment schemes. On Dec. 18, the Ohio Division of Securities offered these tips:
* Don’t buy in to promises of high returns. When stock prices in general are suffering, be skeptical of anyone promising high or unrealistic returns. * Do due diligence. Take time to understand what you’re buying--that includes appliances, automobiles, electronics and—yes--investments. Is the brokerage firm, securities salesperson, and/or investment adviser licensed? Have there been any enforcement actions taken against them? Are they registered with the state division of securities? * Watch for red flags. Are family members or friends singing the praises of a particular investment or securities salesperson? Be cautious, because the euphoria may be short-lived. * Check your balances. Make sure your mailed account statements jibe with your online account. * Take notes. When you speak with anyone about your investments, keep detailed notes from those conversations.
To check out an investment professional or broker, or to file a complaint, visit www.sec.gov and click on Investor Information. For more information, read “Sizing Up Your Financial Adviser” and listen to “Investment Scams Targeting Baby Boomer’s Retirement Savings” in Home & Family Finance Resource Center.
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