Consumer Alert: Avoiding ponzi schemes

A ponzi scheme is a carefully orchestrated financial scam, yet there are some simple truths that make them work.

When you mention the name Bernie Madoff, the words ponzi scheme probably come to mind.

In 2008, Madoff admitted to stealing billions from investors, masterminding the largest ponzi scheme in history.

He was sentenced to 150 years behind bars.

"One thing we have seen in these scams is that people are often brought in by friends and family members or people from church who are well-meaning, but fallen to the victims themselves, so people should do their own research," said Michael D. Anderson, Assistant U.S. Attorney.

Anderson says ponzi schemes are a growing problem in the U.S. In fact, one recent case had almost 400 victims and a staggering $16 million in losses.

Law inforcement and postal inspectors want investors to know the signs of a scam.

"Something people need to be aware of is investments offering to return 40% or even 20%, something that is much more than what they can get in a normal investment, often those are frauds or schemes," said Anderson.

"One other thing consumers should be aware of is when someone claims to be a stock broker, you can research it on your own with websites such as the SEC," said Troy Dickinson, a U.S. Postal Inspector.

How does a ponzi scheme work? The bogus investment operation pays out returns from money paid in by the next group of invstors, rather than from profits earned.

If investors aren't cautious, they can get caught up in the cycle and lose everything.

"Some had to delay their retirement. They cashed in their 401K, they lost everything they had. On top of all that, when the suspects were arrested, there was no money left to give back to the victims," said Dickinson.

Postal inspectors say scam artists often display their wealth to potential victims, claiming they are able to afford the luxury items because of investments.

So, do your research. Don't invest with anyone until you thoroughly check them out.

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