By: Joe Delaney
We all know that fraudsters are out there. We take care not to give out our social security numbers too often and fold our checks so the information doesn’t show through envelopes. We are especially vigilant around the holidays, choosing strong passwords to protect ourselves from cyber theft.
Consumer fraud is one thing; investment fraudis another matter with much farther-reaching consequences.
What’s a Ponzi Scheme?
Since 1920 when Charles Ponzi was caught paying investors with money from new investors instead of actual returns, Ponzi schemeshave only grown in number and scope. There were 500 such schemes perpetrated between 2008 and 2013 alone, totaling a whopping $50 billionin investor losses. Bernie Madoff was the Ponzi king during that period, responsible for $20 billion in white collar thievery.
It is tempting to believe that we would never be duped by the Bernie Madoffs of the world and that our biggest problem is keeping our online passwords strong. Stories like Ruth and Len Mitchell’s remind us that it’s easier than we think to trust the wrong people and lose more than we bargained for.
Meet Ruth and Len Mitchell
Retirees Ruth and Len Mitchellturned over more than $100,000 to their accountant, Barry Korcan, to invest for them through his investment company. He was their neighbor and a friend. They didn’t think they had any reason not to trust him.
In fact, Korcan was running a Ponzi scheme. There was no investment company and no real estate bonds. He was using the Mitchells’ money to repay other “investors” with no intention of repaying them unless he was able to sucker more new victims into his collapsing house of cards.
How Fraudsters Do It
Looking back, the Mitchells could see how they’d been conned. Korcan had joined Ruth’s skating club and a number of other social groups in the community to become well known and trusted. This is called “source credibility.” He was known, therefore he was trusted.
The more often people like Ruth and Len told friends about the investment opportunity, the more “social consensus” was building in Korcan’s favor. He had made the Mitchells unwitting accomplices.
In the Mitchells’ case, their irretrievable losses totaled about $130,000, enough to cripple their retirement savings. What if youwere being offered the deal of a lifetime by someone you trust? The high expected returns might entice you to invest far more. How devastating would it be to discover it was all gone?
Here are a few ways to prevent this from happening to you or to a loved one:
1. Consult with someone elseyou trust.
Obviously the problem here was that the Mitchells had decided they could trust Korcan. What they needed was to ask someone trustworthy outside his network what they thought about the situation. An attorney, for example, would be an excellent resource to gauge whether an offer has red flags.
2. Ask about affiliations.
Is your broker/dealer listed as a firm regulatedby the Financial Industry Regulatory Authority (FINRA)? Are they recommended by respected fiduciary organizations such as the BAM Alliance? If the individual offering to broker an investment opportunity downplays the importance of these questions, it’s a red flag.
3. Do your homework.
Check up on the answers by contacting whatever organization the individual says they are affiliated with. Also research the investment itself. The SEC has great toolsavailable to help you do your due diligence to make sure you’re not getting swindled.
What’s the Use of a Lifeguard You Can’t Trust?
While we maintain the highest fiduciary standard of service to our existing clients, we want to give new clients confidence in the validity of the evidence-based advice we provide. We also want to empower investors to hold fraudsters accountable so they are powerless to tarnish the good name of our industry.
So ask around about Lifeguard Wealth. Ask us whatever you’d like. Do your homework.
We look forward to showing you we were worth the effort.
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The opinions expressed by myself and other featured authors are their own and may not accurately reflect those of Lifeguard Wealth. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
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