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Investor Protection

Avoiding Ponzi Schemes - Look for ‘Red Flags’

June 1, 2020

by Howard Haykin



A recent SEC case (posted on Financialish) featured a fraudulent investment adviser in Southern California who targeted senior citizens in an apparent Ponzi scheme. [Click on 'Last Ones Standing' in a Ponzi Scheme.]



Many Ponzi schemes share common characteristics. To avoid being duped, look for these warning signs:


  • High returns with little or no risk.  Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.


  • Overly consistent returns.  Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions.


  • Unregistered investments.  Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.


  • Unlicensed sellers.  Federal and state securities laws require investment professionals and firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.


  • Secretive, complex strategies.  Avoid investments if you don’t understand them or can’t get complete information about them.


  • Issues with paperwork.  Account statement errors may be a sign that funds are not being invested as promised.


  • Difficulty receiving payments.  Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.



For further assistance, click on the SEC’s A Guide for Seniors.