If you have been watching the news then you know that there have been a number of Ponzi schemes which bilked people out of their life savings. By far the largest was orchestrated by Bernard Madoff when he fraudulently took in over $50 billion from a collaboration of individuals including many who lost their entire savings. Most of these schemes offered returns that were too good to be true and some generated hand written statements or statements from their own computer which enabled them to print up whatever they wanted them to say.
The statements probably reflected some type of earnings or a substantial return while the entire civilized population was loosing money with their 401k and other investments. This was the only time anyone can say that having a bad economy is good. The fact that the economy is on a downturn is what helped to expose those fraudulent schemes. People looking to withdraw their money for emergency purposes were soon awakened to an unwanted reality.
Well now there are some online tools you can utilize to help you as well as other investors determine if an investment is legitimate without the economy going bad and before you give your life savings to some crook. The tools that are now available are the Scam meter and the risk meter. Basically these tools are designed to ask investors some questions about themselves and the investments they are considering to help determine if they are on the up and up.
One of the tools even takes a look at an investor’s personality traits to see if they exhibit the characteristic of someone that is susceptible to being scammed. Other things looked at are the investment being considered. Does this investment boast of qualities or characteristics which seem like they just can’t materialize or they seem to good to be true. These tools have been made available by the Financial Industry Regulatory Authority.
Your search doesn’t stop with the legitimacy of the investment you can also, with other links take a look at the background of the investment professional, as well as insurance agents, and brokers or anyone that is possibly considering handling your money in that type of capacity. There are also places for investors to submit complaints, if they feel something just doesn’t add up.
What exactly is a ponzi scheme? We keep hearing that term but where did it originate? Well these schemes are similar to illegal pyramid schemes and it was named after Charles Ponzi who conned some New England residents by getting them to invest with him. They invested into a postage stamp speculation scheme.
In a nutshell Charles Ponzi figured he would be able to make the variance between U.S. and foreign currencies work to his advantage to purchase international mail coupons. Now as an investor one of the things you want to look out for is outrageous claims such as the one Ponzi told his clients or investors about. His assertion was that they would be able to receive a 40 percent return in as little as 90 days. Investors were looking for ways to make more money because at the time a bank savings account was paying 5 percent.
Investors were so enamored with the idea that Ponzi collected at one setting about $1 million in as little as three hours. Of course Ponzi paid off some of the early investors to help cover up the scheme but someone did their due diligence by way of investigation and found that Ponzi only purchased a very small amount of the international mail coupons. The amount purchased was actually less than $40.
The first investors were paid with the money from new investors. The earliest investors were actually not earning any money on their money which is the gist of a ponzi scheme.
Source: U.S. Securities and Exchange Commission
Author: Matt Krantz & Pallavi Gogoi