What do a ticket reselling scheme featuring the Broadway hit “Hamilton,” a luxury real estate developer, and an Indian cryptocurrency ploy have in common? They were all Ponzi schemes whose fraudsters swindled millions of dollars from their unsuspecting victims last year. Sadly, Ponzi schemes are alive and thriving.
In a Ponzi scheme, the fraudster uses money s/he collects from new investors to pay off existing investors. What seems like a return on your investment is just money from another investor. Although unsuspecting elderly investors are the preferred target, younger investors can also fall victim to these scams.
Prospective clients sometimes ask us: “How do I know you won’t run off with my money?” Our response is to direct investors to the Securities & Exchange Commission (SEC) website, which published a list of warning signs. These include:
- Promises of high returns with little or no risk, and delivering consistent returns even in down markets — Every investment carries risk. Remember the old saying, “If it sounds too good to be true, then it probably is.” The real estate developer, for example, was promising investors 5-10% annual interest payments. In today’s low interest environment, it’s little wonder that he could swindle close to $1.2 billion.
- Unlicensed sellers or unregistered investments — Most Ponzi schemes involve individuals or firms who are not licensed or registered. Use the free search tool at investor.gov to check whether the person is licensed and registered. The fraudsters in the Broadway musical case told investors they would pool their money to buy tickets to popular shows in bulk, and then resell those tickets at a higher price. They promised investors 10% annualized profit within one year of their investment. Of course, neither fraudster was a registered or licensed individual nor was their “pooled investment” registered with any regulators.
- Secretive or complex strategies — Don’t invest in something you don’t understand, regardless of the promises someone makes you. Scammers are making big money from people who want in on the latest digital gold rush, but don’t understand how the technology works. Last year, the technology developer Gnosis sold $12.5 million worth of its digital currency in less than 12 minutes. On the same day, in Mumbai, a company called OneCoin was in the middle of a sales pitch for its own digital currency when Indian enforcement officers raided their meeting. Authorities jailed 18 representatives, and seized $2 million in investor funds. Unfortunately, $350 million had already been moved through a payment processor to Germany. Authorities accuse OneCoin, which pitched itself as the next Bitcoin, of implementing a Ponzi scheme.
In addition to these warning signs, there are others, including sellers who are very aggressive and try to pressure you to buy immediately. Always take your time to review an investment and consult with your legal counsel or trusted financial professional (who should be licensed and registered). Azzad and its mutual funds are registered with the SEC. We do not guarantee any return on your investment, and you can lose money investing with us. Familiarizing yourself with the red flags is a good way to protect you and your family from losing your hard-earned money.
