How to Recognize a Ponzi Scheme

Say the name Bernie Madoff and most people recognize the name as the person who was the organizer of one of the most successful Ponzi schemes in history. For more than 20 years, he convinced investors to trust him to invest their money. He made promises about the return on their investments that were simply too good to be true. At Gaydos Duffer, we encourage people to be on their guard, so they do not get caught up in a Ponzi scheme which almost guarantees they will lose their investment.

A classic Ponzi scheme occurs when investors are promised a fast and high return on their investment. The investors are paid quickly with funds “invested” from new investors. In order to continue to be successful, the scheme must continue to attract new investors even though there is really nothing in which to invest. Eventually, the scheme collapses when no new investors take the bait.

Ponzi Scheme Red Flags

The biggest red flag indicating that the “investment opportunity” is, in reality, a Ponzi scheme is when you are being offered something that is out of the ordinary or too good to be true. For example, if somebody tells you they can guarantee a 20 percent return on a $10,000 investment, that is out of the ordinary and too good to be true.

Every legitimate investment carries some risk, so you should be highly suspicious of any offer that guarantees a certain percentage of return, especially when that guaranteed return is unusually high. If you are offered such a deal, before you take one step toward investing, you should have the person you are talking to investigated.

Also, investment returns vary. They go up and down over time. If an investment regularly generates positive returns, be suspicious.

Unfortunately, the elderly are often the targets of Ponzi schemes. They do not seem to see the initial red flag. By the time they realize they have been taken in by a fraudulent scheme, it is too late. Their money is gone.

If you think you have been a victim of a Ponzi scheme, contact us at Gaydos Duffer. We can help you report the fraudulent activity to the Securities and Exchange Commission (SEC) if it involved securities in any way, shape or form. If it involves anything else, we can contact the Office of the Attorney General on your behalf.