This isn’t an exciting topic to talk about and can be kinda depressing because people lose all of their money. That being said, I’ve seen my share in my 24+ year career. From Madoff to Allen Stanford to a local real estate syndicate that had their primary office in the same office as me, here are some things to look for to make sure you don’t get caught up in a Ponzi scheme scenario.
- The old adage goes, if it sounds too good to be true, it probably is. For example, if someone was offering above market returns in a sector that’s in distress, they are probably not being honest with you on how they achieve their returns.
- It doesn’t hurt to pull public records to find out if the person who is running the investment being offered has a criminal past. You’d think no way this can happen, but a few years ago I had someone come to me with an investment he was being pitched. A simple google search showed the person was a felon from another state. For real estate, you can do a public records search to see mortgages on a property. This will tell you if a property is leveraged. I’d also go and visit to make sure the property exists.
- Is their name in the company? This is just something I’ve seen over the years. These people are megalomaniacs with big egos, and they tend to put their name on the company (Madoff, Stanford and the real estate company I mentioned at the beginning all had the fraudsters names as the company name). Lastly, do they look scared if on TV or in public? This is a sign that the walls are falling in around them and is a major warning that they are in trouble.
In the end, remember you don’t just lose your investment but have to deal with clawbacks from the trustee that will be appointed by a court. If something doesn’t sound right, don’t do it. The only thing you’ll miss out on is years of headaches and financial loss.