In recent years many victims have fallen prey to Ponzi schemes. It can be a very frightening thought to lose money in this type of investment gone badly. There are many reputable investment firms that have standards of due diligence that they must follow in order to avoid investing their client’s money in a Ponzi scheme. Educating one’s self on the identifying factors that can accompany a bad investment or a scheme that can result in the loss of all an investor’s money is an important place to start.
A Ponzi scheme can be operated by a well-respected investment company, as seen in Bernie Madoff’s case. This type of fraudulent investment scheme can lead to imprisonment by the operators of the scheme. The Securities and Exchange Commission, also known as the SEC, has strict rules and regulations in place to catch suspicious behavior with investments that may lead to the knowledge of a Ponzi scheme. The SEC governs and enforces the laws set in place to protect investors from schemes such as these that can take be deceiving to investors. Understanding what to look for is important when determining if an investment is legitimate or note.
The operator of the Ponzi scheme can be extremely well-liked and respected within a community. They can provide a compelling sales pitch that is more than believable. It is always important to check up on supporting documents with the SEC to verify validity of an investment. This is the first step in avoiding this type of bad investment. Many operators of these types of schemes provide documentation that appears to look professional and valid, but it is always important to verify the information on the investment with a governing authority to be absolutely sure it is a valid investment.
A Ponzi scheme can trick investors into believing that they will receive high returns on their investments, because they provide large returns at the beginning. The operators of these schemes get new investors, and then they fund the returns with these new investors’ money. This is how the operation continues. When new investors stop coming in, the Ponzi scheme begins to fall apart. When investors do not receive returns anymore, they begin to question the validity of the investment. These questions should always be made in advance prior to investing. In order to protect thousands of potential investors, it is the responsibility of all financial advisers as well as investors to verify the validity of each investment that is funded.