Hard to remember, but it was only recently that the term “Ponzi scheme” entered into our water cooler conversations. During the recent economic meltdown, it is unfortunate that many such fraudulent investment schemes were exposed: Bernie Madoff, Earl Jones, etc.
Bernie Madoff is perhaps the most infamous example of this type of criminal. And now, as part of his bankruptcy proceedings, his slippers are for sale. The emotional impact of his story still captures our imagination as many investors see retribution unfolding in bankruptcy court.
The modern era of stock trading and investing has been defined by the rapid transfer of information and knowledge flowing between extended networks of friends, family and media sources both on and offline. The advent of the internet and a range of custom online resources provide the promise of insight, knowledge and success. True to this, according to a recent CSA Survey on Retirement and Investing, 44% of Canadian investors are conducting research on their investments, and as a result, feel more confident in their potential outcomes. This is the upside of a freer exchange of information on investments.
However, this rapid transfer of information has also opened the door to larger amounts of misinformation and greater fraudulent activities regarding investing and finances, as exemplified by the Ponzi schemes themselves. Information is being circulated from numerous unreliable sources, and even personal referrals may not be enough, making it increasingly important to be knowledgeable about what you are investing in and what is in your portfolio.
Think you can spot a scam? With so many out there, it is becoming increasingly difficult.
There are warning signs that an investment is not safe.
Consider these 5:
- You hear about it from a stranger
- You cannot check that the information is right
- You hear you can make a lot of cash quickly, with little or no chance of losing your money
- You get a hot tip you are not supposed to tell anyone else about
- You feel pressured into buying
While you should always look for these warning signs, it is also important to do your research prior to investing. The Ontario Securities Commission provides timely investor warnings and information about individuals and companies that appear to be engaging in activities that may pose a risk to investors.
Go to the experts:
Enlisting the help of an expert allows you to take the research you have collected and make informed decisions with professional guidance. It is important to find a good adviser who you trust, and is right for you. Just as not all investors are the same, not all advisers are the same. Once you have found an adviser who you trust, make sure you monitor that your adviser is working for you.
So while the sale of Madoff’s extravagant personal belongings has brought him into the news again, take this opportunity to review your portfolio to make sure you avoid fraud in your investments.