The old adage, "If it sounds too good to be true, it probably isn't legitimate" is more relevant in today's web-based, Twitter-driven information age. By following a few basic rules and by knowing what questions to ask, you can decrease the likelihood of being a victim of the next Ponzi scheme.
1
Really know who you are dealing with BEFORE money or personal information changes hands
The lesson to be gleaned from the Madoff investment scandal is this: Do not rely only on personal relationships when making investment decisions. As counter-intuitive as it sounds, just because you know someone well doesn't mean that they can't be knowingly or unwittingly part of a investment scam. Affinity fraudsters use the trust and rapport that you have built within your social circles to "get you onboard" the investment scam. Before you open up your contacts list or wallet to anyone, be diligent to ask for references, copies of audit reports (from reputable audit firms), credentials, proof of registrations, and copies of public reports. Be suspect of vague responses or promises of information that never seem to answer the original question. Also be wary of being referred to other "satisfied customers" who only tell you how great their returns on investments have been-- they may be confederates of the fraudsters or the earliest recruits to the pyramid scheme. Ask or be sorry.
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If this investment plan is so good, where is your personal money invested?
Ponzi and pyramid schemes are always profitable (for the fraudsters) and initially the early "investors" receive great returns. If someone is promising to "beat the market" with your money, ask them where they keep the bulk of their personal portfolio. If the answer isn't that their money is also in the investment vehicle that they are trying to sell you, you have to wonder why? Ask to see documentation. If you don't understand the answers or documents, because it is "too technical" or "a proprietary secret" watch out! A variation of this fear tactic is being told that you are being "difficult" or an uncooperative investor. If it is your money, you are entitled to know exactly where it is invested and what the risks are associated with those investments. Someone who asks for your trust but can't explain why you should just trust them or produce an accounting for funds on a daily basis probably has to find more "participants" (i.e., suckers) in order to fund your dividends.
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