How To Spot A Ponzi Scheme (NAPSA)—The promise of guaranteed returns, consistent gains when the rest of the market is volatile, and complex or secret investment strategies—theseareall warning signs of a Ponzi scheme. Learning to recognize them, and doing a little homework, could help you avoid getting conned. “Tt may appear as though new investment scams are invented every day,” says Gerri Walsh,president of the FINRA Investor Education Foundation.“But most boil down to a few commonpatterns.” What changes is the “hook”— the lie a criminaltells to make the scheme believable. For Ponzi schemes, it’s often something an investor can’t get anywhereelse, Walsh said, such as abnormally high returns. “You have to remember that these are professionals who are very experienced in making ‘too good to be true’ sound good enough to be real,” she said. How Ponzi schemes work. Rather than investing or managing money as promised, a central fraudster or “hub” con collects money from new investors and uses it to pay earlier-stage investors. This is the strategy Charles Ponzi used for his infamous postagestamp scam of the 1920s. As with the original, all Ponzi schemes require a steady stream of incoming cash to stay afloat. They fall apart when new investors can’t be found or when too many investors attempt to get their moneyout at the same time. Here are the key warning signs of these scams: eGuarantees: Be suspect of anyone who guarantees that an investment will make money. All investments carry some degree of risk. eUnregistered products or sellers: Many investment scams @ involve unlicensed individuals selling unregistered securities— ranging from stocks, bonds, notes, hedge funds, oil or gas dealsorfictitious instruments, such as prime bank investments. Before investing, ask if the seller is registered with the Financial Industry Regulatory Authority (FINRA), your state securities regulator or the U.S. Securities and Exchange Commission (SEC). Also ask if the investment is registered with your state or the SEC. Then, independently verify the information. Consistent returns—no matter what: Any investment that consistently goes up month after month should raise suspicions, especially during turbulent times. Even the most stable investments can experience hiccups oncein a while. Complex strategies: Legitimate professionals should be able to explain clearly what they are doing. It is critical that you fully understand any investment you're seriously considering. eMissing documentation: If someonetries to sell you a security with no documentation—thatis, no prospectus in the case of a stock or mutual fund, and no offering circular in the case of a bond—heor she may beselling unregistered securities. The sameis true of stocks without stock symbols. eAdviser as custodian: Be sure you know who holds your assets. For instance, is the invest- ment adviser also the custodian of your assets? Or is there an independent third-party custodian? It can be easier for fraud to occurif an adviser is also the custodian of the assets and keeperof the accounts. For more information on spot- ting and avoiding investmentfraud, visit the FINRA Foundation’s fraudfighting website, www.SaveAnd Invest.org/LearnMore.
