Investment Fraud: How to Avoid Ponzi Schemes
In response to National Fraud Awareness Week it’s important to bring attention to the biggest and worst investment fraud of all: the Ponzi Scheme.
Wikipedia defines a Ponzi scheme as fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.”
The SEC has some advice for those concerned they might get hooked into a Ponzi scheme: Whether you’re a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard-earned money to an investment.
The SEC sees too many investors who might have avoided trouble and losses if they had asked questions from the start and verified the answers with information from independent sources.
Whether you are concerned with identity theft or considering your next investment opportunity, start with these five questions:
Is the seller licensed?
Is the investment registered?
How do the risks compare with the potential rewards?
Do I understand the investment?
Where can I turn for help?
For more information, read Investing Smart from the Start: Five Questions to Ask Before You Invest
Robert Siciliano personal and home security specialist to Home Security Source discussing ADT Pulse on Fox News. Disclosures
