Ponzi Schemes: Don't Be A Victim

Would you know how to spot a Ponzi Scheme if someone approached you with a great investment deal?

With the Bernie Madoff investment scandal fresh in the news, there's been a lot of talk of Ponzi schemes lately.

According to Wikipedia, a Ponzi scheme is a:

"fraudulent operation that pays returns to investors from their own money or money paid by subsequent investors, rather than from profit. The Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going. The system is destined to collapse because the earnings, if any, are less than the payments."

Because Ponzi schemes usually involve mail fraud, the U.S. Postal Inspection Service has gotten involved to help warn consumers on what to watch out for, especially in this economic market, where people are looking to make quick money.

Affinity - Watch out for the "affinity" angle. That is when a consumer is contacted by someone who has an affinity to them, like they belong to the same church, live in the same community, belong to the same club or organization, etc. They may use that affinity so the consumer will drop their guard, not believing anyone from the same group would scam them.

The Hard Sell - Be wary of pressure to "get in while the getting's good". Before handing over your money, research the company online, ask for a list of clients and talk to other investors. Beware of anyone who suggests putting money into something you don't understand or promises to "take care of everything for you".

Follow The Money - Never make out a check addressed to a private citizen. You should always sign it to a third party organization. Make sure you understand and receive a copy of the investment, that includes the terms and conditions of the transaction..

Broker Check - Make sure the person doing the investment is licensed to do so. A legitimate broker will be registered in good standing with FINRA, The Financial Industry Regulatory Authority. If they are not licensed, you should really re-think whether you want them handling your money.

Now we're not saying that anyone who fits these descriptions is definately running a Ponzi scheme, but they are warning signs and you should ABSOLUTELY never do business with an unregistered broker.

If you are concerned that you may have fallen victim to a Ponzi scheme, don't wait, report it immediately. Many times people will stay silent out of embarrassment or humiliation, but that only gives the schemers more time to move and hide the money.

You can report a Ponzi scheme and get more information about protecting yourself by contacting the U.S. Postal Inspection Service Office at 877-876-2455.

Other agencies you can contact include The Federal Trade Commission and the New York Attorney General's Office.

To do a broker check, go to the FINRA main site.