Chuck Bentley on How to Avoid Falling for Financial Fraud

Dear Chuck,

My best friend’s mother was a victim of financial fraud. She lost most of her retirement savings. I’ve read about Bernie Madoff and his Ponzi scheme but I’m concerned for the vulnerable people I know. What can I do to protect my family and those I love?

Afraid of Fraud

Dear Afraid of Fraud,

I hate hearing of another victim of fraud. Unfortunately, I have counseled numerous people through the years that have been scammed.

We live in a day and time when dishonest people have more ways to access seniors, veterans, the military, even faith-based organizations for financial gain.

The Bernie Madoff scheme made international news a decade ago. He pled guilty to the largest Ponzi scheme in history after successfully swindling investors out of $65 billion. That was considered by some an “affinity fraud” as it was primarily a Jewish person using inherent trust to deceive others in the Jewish community.

I had friends who were deceived by Tom Petters. He was convicted of 20 criminal counts and sentenced to 50 years in prison for running a $3.65 billion Ponzi scheme. But, he relied on others to keep it going. The New Republic reported how an accomplice of his used donations to get to the hearts and wallets of those in Christian and political circles. It’s an educational article and worthy of your time.

Affinity fraud is insidious because it is built upon the assumption of trust through being a part of or affiliated with some common group or cause. Greed and lust for dishonest gain is at the root of fraud, but it is often hard to detect.

The SEC says affinity fraud exploits the trust and friendship that exists in groups of people who have something in common. Fraudsters use different methods to gain access to groups, often using key leaders to promote their scheme. Respected individuals make the scam more believable. Unfortunately, they may not realize an investment is a fraud until after they’ve recruited others.

Many investment scams are known as Ponzi or pyramid schemes, named for swindler Charles Ponzi who orchestrated one in 1919. Here is an important tip to help you keep your guard up: most ponzi schemes have some similarities.

Characteristics of Ponzi Schemes

  • Guaranteed promise of high returns with little risk
  • Consistent flow of returns regardless of market conditions
  • Investments are not registered with the SEC
  • Investment strategies are confidential or too complex to explain
  • Clients are not allowed to see official paperwork for their investment
  • Clients face difficulties removing their money

Click here to read more.

SOURCE: Christian Post, Chuck Bentley