Don't Get Suckered by Ponzi Promises

Despite the high-profile case in which Bernard Madoff bilked a spectacular $50 billion from investors, don't expect the curtain to close anytime soon on Ponzi schemes.

A down economy is a breeding ground for scam artists who prey on desperate investors. And, for many, these have been desperate times. So expect more mini-Madoffs to try to take advantage of battered investors and their shattered portfolios.

Ponzi schemes lure you with promises of unusually high returns--sometimes 40% to 80% a year--or a doubling of your money in, say, 90 days. The scam artist may pay you "returns" from your own money or from money paid by later investors, rather than from any actual profit earned. However, it's impossible for a Ponzi to survive; the earnings, if any, are less than the payments. Eventually, the Ponzi con artist runs out of investors, runs away with the money, or runs out of luck and is arrested for selling unregistered securities.

The first known widely publicized Ponzi operation was named after Charles Ponzi, who came to the U.S. from Italy in 1903. Ponzi took in large sums of money under false pretenses, diverted investors' money to make payments to earlier investors, and kept most of the money.

Be skeptical if anyone promises you unusually high, consistent returns on your investment. Check out investment advisers and brokers with the Securities and Exchange Commission and protect yourself with tips, calculators, and resources by visiting the Financial Industry Regulatory Authority. Harvard Credit Union wants you to be informed. Don't lose your hard-earned money to a Ponzi scheme or any other type of fraud. If the promise seems too good to be true, it probably is.

 

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