How do you know we won’t run off with your money?

What do a ticket reselling scheme featuring the Broadway hit “Hamilton,” a luxury real estate developer, and an Indian cryptocurrency ploy have in common? They were all Ponzi schemes whose fraudsters swindled millions of dollars from their unsuspecting victims last year. Sadly, Ponzi schemes are alive and thriving. In a Ponzi scheme, the fraudster uses money s/he collects from new investors to pay off existing investors. What seems like a return on your investment is just money from another investor. Although unsuspecting elderly investors are the preferred target, younger investors can also fall victim to these scams. Prospective clients sometimes ask us: “How do I know you won’t run off with my money?” Our response is to direct investors to the Securities & Exchange Commission (SEC) website, which published a list of warning signs. These include: Promises of high returns with little or no risk, and delivering consistent returns even in down markets — Every investment carries risk. Remember the old saying, “If it sounds too good to be true, then it probably is.” The real estate developer, for example, was promising investors 5-10% annual interest payments. In today’s low interest environment, it’s little wonder that he could swindle close to

April 10, 2018 No Comments

Five questions to ask before investing

Sometimes we get calls from clients asking us to research certain investments they’ve heard of that promise income without risk. Putting aside the question of whether or not such investments are halal, investors may be unknowingly falling for a potential Ponzi or pyramid scheme. Keep in mind that such a scheme could go undiscovered for decades. Madoff’s Ponzi scheme is believed to have started in the 1970s, but he wasn’t arrested until 2008. Here are 5 questions you should ask before investing your hard-earned money: 1. Is this a security? If so, is it registered with state or federal regulators? Under federal law, an investment is a security if it passes the Howey test. Under Howey, an investment contract is “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.” An investment is almost certainly a security if its marketing materials (website, brochures, etc.) promise great returns or guaranteed income. Why does it matter? If something falls within the definition of a security under applicable law, it will be governed by extensive rules and regulations that can be

June 6, 2016 No Comments