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Monday, September 25, 2023

How to Avoid Ponzi Scams


It’d be nice if we could just count on every human being to operate with a sound moral compass and not prey upon people’s good faith, but we’re not so lucky. In fact, it’s really on all of us to take the preventive measures at our disposal and do our due diligence to ensure that our hard-earned money isn’t being played around with by those predatory Ponzi scammers. Fortunately, we have a wealth of helpful resources available to use that can help you put together a foolproof checklist to ensure you don’t ever end up suffering at the hands of a Ponzi scam. Let’s take a look at how you can best avoid a Ponzi scam.


You’ve really got to dig deep when it comes to figuring out what’s what with your financial advisor. This is really one of the main things that fall in the realm of what you should know if you’re new to investing. You need to realize that anyone out there can technically refer to themselves as a financial planner or advisor. You might even start by running a lookup mugshots online. You never know what kinds of skeletons could be lurking in an alleged finance professional’s closet. You can easily look up those mugshots online for free, and the time you take to do that can spare you a world of pain further on down the road.

Also, you need to take things a step further and check in with the national organizations that are actually issuing those credentials. You should ask to see your advisor’s ADV Form Part II, which a planner will file with the Securities and Exchange Commission. That form will contain crucial info about the advisor’s background, services, and fees. You’ll additionally be able to see any complaints they might have filed against them.

Shady Pitches

If your advisor is trying to sell you on something that seems way too good to be true, that’s likely because it is. Our intuition is a powerful tool. So many times it’s like part of our brains know that something is terribly awry before the actual nasty moment confirms the suspicions. Trust your gut, but also if you end up getting a pitch for an asset class that you’re not familiar with, you’ve got to make sure that you have a full understanding of the process by which it achieves returns. The ultimate name of the game here is to only invest in those transparent assets. A hedge fund, for example, isn’t required to share its holdings and would thus be classified as a nontransparent investment.

Manager Vs Custodian

This might be the most important thing to note as you put together your checklist for avoiding Ponzi schemes. A custodian, which includes those institutions like Fidelity and Charles Schwab, possesses your investment account and will also issue occasional statements of your transactions. Then, the manager of those assets will execute the transactions. The key thing to note here is that the fraudulent activity will occur when the manager and custodian responsibilities are paired together. Basically, keep a watchful eye out for the investment manager who demands total control of your money and asks that checks be made out to them. That’s a massive red flag.

We’ve covered a few essential things to note for when it comes to managing your money and investments in a safe and smart manner. Learning how to steer clear of monstrous Ponzi scams isn’t quite as easy as leaning how to tell if you’re being catfished, but educating yourself with helpful tips like this will give you a leg up on the Ponzi scammers of the world. From there, you might even be able to catch some in the act and turn them in. There’s nothing better than helping shut down Ponzi scammers that’d otherwise take advantage of other unprepared victims.

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