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TAG | Mueller ponzi scheme

Dec/10

13

Tips at Avoiding a Ponzi Scheme

Comments off · Posted by admin in FINRA

The Madoff Ponzi scheme happened two years ago this past week.  Ponzi schemes are in the news again. The Justice Department announced this week that it had brought criminal and civil cases against more than 500 people for fraud schemes that involved more than $10 billion in losses.  The reality is that small-time Ponzi schemes have been coming to light with regularity since the financial crisis began and investors started asking for their money back. That’s a big problem when an investment scheme is built on paying out old investors with money brought in from new ones. According to data compiled by Investment News, a trade publication, schemes involving $9.244 billion in losses have been revealed so far this year.

Last week, a former Denver-area hedge fund manager, Sean Mueller, was convicted of running a scheme that bilked some 65 investors out of $71 million. One of those investors, John Elway, the former Denver Broncos quarterback,  lost $15 million.

Small investors who handed over their life savings to Mr. Mueller or other swindlers, will, in all likelihood, not fare well; they will probably never see that money again.

Here is a look at what all investors should consider to keep their money safe.

The people who are most likely to involve you in a swindle are friends and relatives. It has become so common that it now has its own name: affinity fraud.

We have a tendency to trust people we think are like ourselves.

One of the most egregious recent examples of this involved Imperia Invest IBC, whose assets were frozen by the Securities and Exchange Commission in October. According to the S.E.C., Imperia defrauded some 14,000 investors out of $7 million. About $4 million was collected primarily from the deaf.

Another big risk is to associate Ponzi schemes with hedge funds. The reality is that Mr. Madoff and the others who have been caught were not running hedge funds; they were running swindles.

The two most common themes were, “I have a complex strategy that I cannot divulge,”  and, ”I have a strategy that supplies double-digit returns year after year.”

Make sure to do your research before investing. The truth is, few people take the time to really do it.

One of the first things to do is a Google search of the accused schemer. Many people do not even do something as simple as a Google search, because someone they know recommended them or uses them as their broker.  It’s amazing to see the looks on clients faces when a simple Google search reveals previous complaints.

An investor should first ask the manager of the fund what institutions have invested with him. If the manager has been in the business for decades yet has not secured any institutional investments, that should be a warning sign.

Next, people should consider the manager’s background and ask where he learned how to manage money.  Then ask who the manager’s bosses were at those places.

Also, another approach is to make sure that all your investment eggs are not in one basket.  One of the easiest things investors could do was insist that a hedge fund use different firms for the three main services it needs: a clearinghouse to buy and sell securities, a custodian to hold the money and an administrator to ensure that the value of the assets is correct. Having one firm do all three can be a recipe for disaster.

If you have been caught up in a ponzi scheme, you may be able to recover your losses. Call a Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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