Tips to Avoid a Ponzi Scheme

by Jacob Zamansky on January 27th, 2009 at 2:15 pm : Comments 000

1. Be wary of recommendations from brokers or financial advisors based solely on the fact that they are a member of an organization or religious or ethnic group to which you belong.
2. Investigate the investment thoroughly and check the truth of every statement you were told about the investment.  You can research on the Internet any stocks or other investments that are being pitched.
3. Be very cautious and avoid promises of “guaranteed” returns or spectacular profits.  In the last year or so, the market has declined over 40%.  Anyone promising to make money such as 10 or 15% on an annual basis when the market is going down is likely to be a phony.
4. Be skeptical of any investment opportunity that is not in writing.  If someone has something real to offer they will put it in writing, otherwise it is not real if simply said orally.
5. Don’t be pressured or rushed into investing in a “once in a lifetime” or “can’t miss” opportunity.  Legitimate investment opportunities are not rushed to investors and investors must be given time to carefully think about and investigate the proposed opportunity.
6. Check out your brokers on FINRA.org.  Check out your broker’s customer complaint, regulatory history and employment history .
7. Check out investment advisors on the SEC’s database.
8. Do not do business with unregistered investment advisors.
9. Avoid anyone who has prior customer complaints or regulatory problems and avoid brokers or advisors who have switched firms repeatedly (at least three changes in a five year period).
10. Make sure that any investment is held at a known reputable financial institution (Citibank, Bank of America, etc.) and that there is a specific account with your name on it and an account number.  Verify that the money is in fact being held by the bank.
11. Never make a check out personally to an investment advisor or a small unknown company.  It is possible or even likely that your money will be stolen.
12. Check to see if the investment advisor has a website.  If there is no website, this is a big red flag that your broker or advisor is not legitimate.
13. Make sure you understand the investment advisor’s strategy and what he or she will put your funds in.  If you don’t understand it after speaking with the advisor and doing your own independent research, avoid the investment.
14. If it‘s too good to be true, it probably is.

Filed under Bernard Madoff, Investment Fraud, SIPC, Wall Street
and arbitration, Investment Fraud, madoff, Ponzi Scheme