Many Florida residents plan for retirement or live out their retirement in the sunshine state. New investors may unwittingly place their money into a Ponzi scheme. Understanding the red flags can help investors avoid losing their money to this type of investment fraud.
The Securities and Exchange Commission defines a Ponzi scheme using new investor contributions to fund existing investor returns. This creates the illusion of legitimacy and offers investors a no or low-risk investment with high returns. Named after the 1920s postage stamp speculation scheme, Charles Ponzi promised New England residents a 90-day return of 50% on their investment.
In addition to the high return on a low to no risk investment, there are additional warning signs of a Ponzi scheme. An unlicensed seller or unregistered investment could indicate a fraudulent investment. Paperwork issues, payment receiving difficulties, returns too consistent and strategies complex or secretive can indicate a Ponzi scheme.
The Economic Times offers some additional red flags for investors to help avoid a Ponzi scheme. If the investor does not offer any insight into the downside of the investment, that could indicate a fraudulent plan. Any return promise over 15% is a warning flag as investments rise and fall with the times.
A scheme that does not provide publicly available information offers investors nothing to verify the claims the firm makes independently prior to investing. Another large red flag is the person who offers guarantees. Investments with an assurance of future prosperity do not allow for the volatility of the market. These are a few red flags to look for prior to investing.