Identifying a Ponzi scheme


If something seems too good to be true, it most likely is. Even though that saying is well known within society, it is not always easy to identify red flags when someone is trying to pull you into a scheme. Unfortunately, some people try to take advantage of investors, especially investors who are not knowledgeable about potential schemes or are desperate for a quick fix to a financial situation. These solutions appear to be legitimate on the surface and offer potential results that would benefit you greatly, but underneath reveal

A Ponzi scheme is when a seller uses money from a new investor to pay an existing investor. It essentially steals money from one person and gives it to someone else. Doing this is illegal. Seniors who have been investing money are becoming targets for such schemes. Experiencing errors that do not appear to be significant could be signs that you are part of a Ponzi scheme. Red flags that you can look for may include:

Unrealistic promises

A seller may promise you an investment will offer high returns with little to no risk. It sounds tempting, and it would mean less work for you while getting the benefits you desire. However, there is no guarantee in investing, and this promise would be impossible to keep.

Returns that are too consistent

As an investor, you know that stocks constantly fluctuate. If you have been caught up in a Ponzi scheme, you may notice a pattern of positive returns that never appear to be affected by the market. This should raise some concerns.

Complicated investment strategy

Understanding the investment is important in any case as you may want to know exactly what will be happening with your money. If you do not understand the strategy and cannot get complete answers, you might want to avoid investing until you have the information you need, or simply turn the offer down.

Illegitimate seller

Sellers may appear to be official and legitimate. They could be easy to work with or someone you feel inclined to trust. However, according to federal law, they must be registered with a firm and licensed. There are resources available online that allow you to search a seller for and check his or her credentials.

In New York, the most famous case of a Ponzi scheme in the twenty-first century involved Madoff. Madoff was the mastermind behind one of Wall Street’s largest schemes. Thousands of victims lost billions of dollars after investing with Madoff’s firm. In 2008, he admitted to orchestrating a massive Ponzi scheme and turned himself into the authorities. While this was 10 years ago, returning the money to the victims has been a long and tedious ongoing process.

Investing your money can have many financial benefits if you are in or nearing retirement. Being wary of what you are investing in is in your best interest. Investing with the wrong sellers or firms could lead to losing large sums of money that you may not get back or will have to wait many years before receiving compensation due to the nature of the scheme. Avoiding unintentionally falling into a Ponzi scheme can save you from future financial consequences.