Good economic times provide fraudsters with the opportunity to victimize very smart and sophisticated business people who are looking to put their money into investments beyond retail brokerage securities.  And frankly, it’s been a little too quiet out there, meaning there is a substantial likelihood that someone is running a Ponzi scheme that has not yet revealed itself.  Here’s a list of “red flags” to think about before investing in something that’s possibly unconventional.

  1. Who are you doing business with?  Investigate not just the promoter, but his underlings as well.  What have these people done before in past businesses and investment opportunities?  Verify their alleged past successes and professional licenses, if any. Do Google searches.  Conduct a civil litigation and criminal history background check.
  2. What is the return?   You’ve heard this before. Follow your common sense; almost always, if the deal is too good to be true, that’s because it isn’t true.  Watch out!
  3. What are the promoter’s offices like?  Do they look professional?  Are they in a good location and how long have they been there?  Do the number of employees working there make sense given the nature of the business operation?  Do they have a quality website and dedicated e-mail domain, or, do they use AOL or Google e-mail?
  4. What are the quality of the investment prospectus and subscription documents?  Who prepared them?  Do they look professional?  Are they well written and grammatically correct?  Are they thorough or are there unanswered questions?  Beware of lack of detail, limited financial data, high financial projections, touting future success, and even, typographical errors.
  5. Is the promoter cooperative with you in verifying information in the prospectus?  What opportunity do you have to verify information from the prospectus or that the promoter orally told you about the deal? Maybe it’s sales figures, bank account balances, ownership of intellectual property -– whatever is germane to the investment’s success – - make sure it’s real.
  6. Watch out for flash.   It is amazinghow many fraudsters go on spending sprees buying high-end luxury goods and services, such as sports cars, jewelry, boats, new homes, private air travel, etc.   Many fraudsters show their flash as a means of showing their “success” and which actually seems to positively influence individuals’ investment decisions.
  7. Who are the promoter’s professionals?  Are reputable lawyers and accountants known in the community engaged and available to confirm facts?
  8. How much of a hard sell are you getting to put your money in?  That’s not a good sign.  Neither are comments like, “This is closing out next week.  You don’t want to miss out.”
  9. Are you being pushed to help find other investors?  It is not your role to find investors.   This could be the sign of a Ponzi scheme because the promoter needs new money to pay off the old money.
  10. Given all of your due diligence, does the deal make sense?  If not, run for the hills!