NEW YORK (TheStreet) -- It is hard to believe that investors are still falling victim to Ponzi schemes, despite all the news surrounding large scams like the Bernie Madoff case -- but they are. And in the technological age we are living in, scams are becoming more complex and more difficult to spot.
On Wednesday, the former Index CEO Masami Ochiai and his wife Yoshimi Ochiai were arrested in Japan for allegedly inflating profits and other financial statistics by round-tripping, in violation of the Financial Instruments and Exchange Law.
On Tuesday, the CEO of Amway India was arrested for allegations of financial irregularities in Amway's operations. Duh -- everyone knows that Amway is a scam.
On Saturday, Iranian billionaire Amir Mansour Aria was executed in Iran for an alleged $2.6 billion bank fraud. 38 other people were also charged in the case.
And not all Ponzi schemes make national news like the Madoff case or Florida lawyer Scott W. Rothstein's case. However, it is clear that all Ponzi schemes have the same end result.
Investors lose gobs of money.
These fraudsters can entice anyone with their strong returns and promises of low risk. What's more, these schemes are usually run by a trusted family friend or professional.
To spot a scam, here are some questions you should ask yourself.
- Do you understand your investments and investment strategy?
- Are you able to review account statements upon request, without delay?
- Is the person or company you are investing with licensed by FINRA?
If you answered "no" to any of these questions, you may be in a Ponzi scheme.
So how can you avoid these scams?
You really don't need to know every detail of your investments -- that's why there are brokers and investment funds, after all. But if the investment is confusing, or in any way questionable, you should check into its validity.
Your investment statements should be clear and without error, and available upon request. If they are not, this is a big red flag, and should be investigated.
If the person isn't licensed, you should not invest with him or her. You shouldn't hire an unlicensed contractor to build your house either -- same idea.
Other questions you must ask yourself:
- Are you receiving large returns from your investments over a short period of time?
- Are your large returns exceedingly consistent?
- Are your investments subject to very low risk, at least according to the adviser's claims?
- Are your investment payments sometimes late?
If you answered "yes" to any of these questions, you may be in a Ponzi scheme. Read more on how to avoid them on page 2.
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