How To Avoid A Ponzi Scheme



As an investor’s rights attorney, it is frustrating to talk to investors after they have lost their life savings investing in a scam. Unfortunately, these scams tend to be more believable in the type of economy we are currently experiencing. The stock market is way up from a decade ago, so pitches that promise high returns seem more plausible. Interest rates are relatively low (although significant interest rate increase have occurred recently, the rates remain low from a historical perspective), so fixed income investors continue to look for higher returns without market risk. Sadly, these investors are often pitched certain types of “alternative investments” as safe products with a steady flow of generous distributions that can be used for living expenses. However, these investments often carry massive risks and often turn out to be fraudulent investments.


Though these scams can cover a wide variety of investments such as art, real estate, cannabis, crypto, etc., the core pitch is often identical. For this reason, regulators have checklists on their websites you can follow (and I recommend you do) to protect yourself. These checklists will tell you to make sure the salesperson is licensed, stay away from investment pitches that promise high and consistent returns with low risks, avoid investing in secret strategies, and be wary of sales pitches that create a sense of urgency or exclusivity.

Despite regulator warnings, many investors still fall prey to investment scams. Based on decades of experience pursuing scam artists on behalf of investors, I would add the following pieces of advice to consider before investing in something that is not publicly traded or regulated.

First, as with the process of selecting an investment professional (described in an earlier section of this book), your due diligence should NOT be dependent on a reference or recommendation from a friend or professional. Suspect investments are often sold by scam artists who spend significant time cultivating relationships with credible people and organizations in the community. Scam artists then leverage those relationships to legitimize themselves and the investment they are promoting.

Second, your due diligence should NOT be dependent on the pitch from the promotor or salesperson recommending the investment. Many investors who speak with our office after being ripped off acknowledge they relied almost exclusively on what the seller told them.

Third, be wary if the pitch includes a claim that that these products do not fluctuate in value like stocks or bonds. This purported positive attribute of the investment is a negative because the reason that the value does not appear to fluctuate is likely due to the fact that there is no active market where you can accurately value or sell these products if you want to do so.

Fourth, be wary if the pitch includes a claim that these products are both safe and pay steady above-market “income.” This is a red flag because steady above-market income is typically inconsistent with low-risk investments. Remember the Yin and Yang of risk and reward.

For more information, see the short video our firm posted on ponzi schemes:


The best recourse is to avoid investing in any product or strategy that has the red flags of a Ponzi scheme. If you believe you are already invested in something that might be a Ponzi scheme, Vernon Litigation Group recommends that you speak with one of the law firm's securities attorneys before the product or strategy implodes to determine how best to mitigate any damage you might incur as well as discuss your legal options.


Vernon Litigation Group is based in Naples, Florida and has been successfully representing investors throughout the United States for decades, with lawyers licensed in Florida, Tennessee, and Massachusetts. Contact Vernon Litigation Group at (239) 319-4434 or visit us online to speak with an attorney today.

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