Ponzi Schemes Prey on Human Weakness
Ponzi schemes are the most difficult financial schemes to crack, for investors and regulators alike, since until they collapse or someone reports them as corrupt, they look and act like legitimate successful investment opportunities. Mostly. While investors often find that once they have signed on to a Ponzi scheme, it’s virtually impossible for them to tell the difference between the fraud and the real thing, the best time to recognize a Ponzi scheme is actually before you get involved with one. That’s because Ponzi schemes and the fraudsters who operate them often demonstrate a pattern of promises and paperwork that ought to make them suspicious. The problem is that investors are at the same time often tricked into believing in something they shouldn’t: a guarantee. The guarantee is, above all, what makes Ponzi schemes in their many forms stick around. As long as investors can be convinced they can earn a reward without risk, Ponzi schemes will find victims.
Ponzi Schemer Paid Priests for Prayers
An investment advisor charged by the Securities and Exchange Commission with running a multi-million dollar Ponzi scheme spent close to a million dollars on prayers from Hindu priests in order to keep the feds at bay. In spite of her prayers, however, Dawn Bennett was convicted by the federal government of defrauding more than 200 investors of nearly $18 million over the past several years.
In one prayer spending spree, Bennett paid five Hindu priests to pray for her freedom over 29 consecutive days. It didn’t help the 56 year-old investment advisor to stay ahead of SEC investigators, however, who reported that Bennet often targeted elderly clients who listened to the radio show she hosted in the Washington DC area. As usual, Bennett spent her ill-gotten gains on luxury goods including jewelry, plastic surgery, and a luxury suite at Dallas Cowboys’ stadium.
Common Signs of a Ponzi Scheme
Once you're inside a Ponzi Scheme, it can look and feel a lot like a normal investment opportunity, especially if the scheme operator is adept at creating false investment documentation. The key is not to get draw into a Ponzi Scheme in the first place. The most common signs of these frauds are evident from the beginning - that's when you have the greatest chance of identifying them.
Inflated investment returns
Guaranteed investment returns
Tax-free investment returns
Vagueness about the actual investments
Overly simplified investment documentation - or none at all
Lack of true expertise or history in sophisticated investing