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Threat of Ponzi schemes remains long after Madoff case

David Pollino

Five years ago this month, Bernie Madoff was sentenced to 150 years in prison for perpetrating a multi-billion-dollar Ponzi scheme. Despite the awareness raised by that case, I still see headlines almost weekly of multi-million-dollar scams.

Consider recent headlines from the FBI:

White feathery seeds blowing off the head of a dandelion into the blue sky.

Don’t let this happen to your savings.

Former Owner of Sacramento Capitols Tennis Team Pleads Guilty in $50 Million Fraud Scheme Long Island Real Estate Manager Pleads Guilty in $96 Million Ponzi Scheme Fund Manager Arrested and Charged in $17 Million Ponzi Scheme Maryland Man Pleads Guilty to Securities Fraud, Operated Ponzi Scheme That Caused About $25 Million in Losses

Time and again individual investors, small business owners, investment funds, retirees and others fall victim to smoke-and-mirror schemes, enticed by promises of high returns. Ponzi schemes are frequently portrayed as business ventures, such as real estate deals or, as in the Sacramento case, manufacturing and distribution operations.

What is a Ponzi scheme? Ponzi schemes promise high financial returns or dividends that are not typically available through traditional investments. But the con artists do not actually invest the funds of victims, but instead pocket the money and pay “dividends” to initial investors using the funds of subsequent investors. The schemes generally fall apart when the operator flees with all of the proceeds or when the con artist cannot find enough new investors to continue paying previous investors’ “dividends.”

Nearly 100 years after Charles Ponzi made “Ponzi Scheme” a household phrase, people are still getting duped. Yet, there are steps people can take to protect themselves and their assets from these schemes.

Here are 3 useful tips to help you avoid becoming a victim of a Ponzi scheme:

  • Be careful of any business venture or investment opportunity that makes exaggerated earnings claims.
  • Do your homework. Exercise due diligence in selecting investments and the people with whom you invest.
  • Consult an unbiased third party, such as a licensed financial advisor, about a business or investment opportunity before making a decision to invest. Often times, financial professionals are trained to help clients detect dubious financial opportunities.


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