Investment Scams and Ponzi Schemes

Investment Scams and Ponzi Schemes

Even in good economies, people want the maximum “bang” for their investment buck. As of this writing, there is a local bank that is advertising a savings account rate of 1.1%! That is not much of a return, so people are trying some non-traditional forms of investing.

Investment Clubs

A friend told me about an investment club, where a person of limited means, such as myself, could “buy in” with a minimum investment of $5,000. I was able to scrounge together $9,000 and was one of the last persons to be accepted. “The Club” then pooled the monies and invested it with a Day Trading firm.

Before submitting my funds, I did my Due Diligence of The Club, as well as the primary firm that would be handling our funds. With everything seemingly in order, I wired the money.

I kept track online of what was supposedly happening with my monies; they seemed to be growing. With “Money in the Bank” I made a few withdrawals over a period of time to help my daughter with her college finances. I then made one more withdrawal to put money into an IRA. Within a week The Club froze all accounts and stopped all activity. It was reported that the Day Trader was actually a Ponzi Schemes.

As it stands, the Day Trader is in Receivership and the investors may get back a portion of their original investment. I am lucky in that, of the actual cash I invested, I will only stand to lose about $800.

Guaranteed Investment?

With that loss burning in the back of my mind, when I heard of another “decent” investment, I again did my Due Diligence, almost to excess. This time I would be closer to my monies. The company was stable and the principals had a good reputation. We were told the money was put into an escrow account, bonded and insured.

Businesses that are “bonded” do background checks on employees. If someone does something intentionally wrong, such as theft, the client can make a claim on the bond and be compensated.

Insurance covers liability issues that may arise. In this instance, if the company should close, then the insurance could provide compensation. For example, people who deposit money with a bank are FDIC insured should the bank fail.

However, greed has a way of making good people do stupid things. The principals transferred the money out of the escrow account and “invested” it with an outside company, which turned out to be another Ponzi scheme! Since the principals violated the terms of the bonding and insurance by removing the money from the escrow account, the monies were no longer covered. There is very little chance of getting any of my money back.

So even though I had done my homework (twice!), I still became the victim of unscrupulous operators.


Here is some sage and time-proven advice:

  • As with any investment, there may be risks involved.
  • Do not invest any money that you cannot afford to lose.
  • Diversify your investments to minimize your losses. Or in other words, don’t put all of your eggs in one basket.
  • Do your Due Diligence, then keep track of what you have.
  • If in doubt, don’t !
  • Have patience. If it’s a “once in a lifetime opportunity”, then you can bet there will be others.
  • Invest your money, then pray.
  • Don’t get greedy.

The intent here is not to chase you away from investing, but rather to caution you to be sure of the people and organizations you are dealing with, that have a long and strong track record.

From my perspective, one last idea that may be against standard investment logic: With volatile investments, move your money around and don’t let it stagnate. That way if your money is caught up in a bad situation, by moving it you may get it out before you lose any. Also, by making a withdrawal, you can “verify” the authenticity of that particular investment. If you can’t get your money, or the principals balk, then that may be a sign of trouble.

I hope this helps keep you from having money misappropriated like I did.

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