Identifying Fraudulent Investments, Ponzi Schemes and Other Scams

By Elsie Dudukovich0 Comments

We’ve all heard the phrase “a wolf in sheep’s clothing” used to describe a dangerous person who appeared to be anything but.  As we grow more experienced in our life, we learn better ways to recognize these wolves, hopefully before they do too much damage!  identifying fraudWhen it comes to managing your self-directed IRA, keeping an eye out for those who prey on investors is a top priority.

So what’s an investor to do, especially if you’re new to this?  News reports about fraud scams, Ponzi schemes, and other complaints about investment mishandling dot the news.  It’s true: you need to be careful and do your homework.  Bad things can and do happen to good people, but doing your homework – and your legwork! – can make all the difference.

The idea of strength in numbers is something to consider when it comes to investing.  Building a team of trusted advisors to review investment opportunities with you can help you catch pitfalls you might have missed if just on your own.  Your own skills and experience plays a pivotal role in your investment choices.  Performing solid due diligence can help you avoid being the victim of a fraud scheme or investment scam.

Here are some questions to get you started on the path to performing good due diligence!
  • Does this type of investment exist? This question may seem silly at first, but let’s take a closer look.  As new types of investments – especially non-traditional investments – become available, getting caught off guard is something to be aware of.  Check in with the International Chamber of Commerce (ICC), Securities and Exchange Commission (SEC), and other governing bodies to see if there are any fraud warnings matching the deal you’re considering.  Getting in on the ground floor of something new is exciting and can lead to great gains, just make sure it’s good instead of too good to be true.
  • Check your sources!  Is the only place you’re getting information about this investment from the company or person pitching the opportunity? Make sure you can gather independent sources to verify both the claims being made as well as the identity of the people making these claims.
  • Can you explain in your own words how this investment works? It’s crucial you know how this investment can make or lose money for you.  It’s a common tactic for fraud perpetrators to make the investment deal as complicated as possible.  One option to consider is having your trusted advisors go over the deal.