Ponzi scheme uncovered in Macomb County, Michigan

Local Elder Law Attorney, Patrick M. Simasko, discovered a phony stock broker who has been charged with stealing more than $1 million from three Macomb County residents.  The family originally contacted Simasko Law Offices for estate planning issues.  During the process, they provided their investment statements, which raised many red flags for the Simasko team.  The following information will help you protect yourself and your life savings.

Full Story: http://www.macombdaily.com/articles/2011/12/14/news/srv0000016019811.txt

What is a Ponzi scheme?

Ponzi schemes, also known as pyramid schemes, are elaborate plan where all the investment funds received from many investors are pooled together with others and investors are paid returns from the deposits of new investors.  Rarely is the money ever invested in real investment vehicles, much less ones that actually can return what is being offered.  These are attractive to potential investors because they advertise high investment returns with little or no risk.

How does it work?

Mr. Ponzi promises the potential investor incredible rates of return.  These investors trust that their money is safe in these great financial vehicles.  Then, rather than invest the money, he collects enough money from his second set of investors to pay the fantastic rates he promised back to his first set of investors.  As the first set of investors talk about the fantastic return, more and more people want to invest their assets.  Eventually, Mr. Ponzi takes all the money and hits the road.

All is well for one or two rounds, but the Ponzi scheme eventually collapses because it takes more and more and more people to support the fantastic rate of return in each subsequent round of investors.  Mr. Ponzi was eventually caught because he violated an important rule:  he never left town.  He wanted to keep going because, well, he liked the money.

How can you protect yourself?

• Use Common Sense.  If it sounds too good to be true, it probably is. An investment opportunity can look like a sure thing, but investors must always think rationally rather than emotionally.  Some investments will offer a guaranteed return, but guarantees of 8 to 12 percent annually are unrealistic because of market fluctuation. If an investment manager is guaranteeing this rate of return with no risks, you should be skeptical.
• Choose Wisely.  Choose an investment manager just as you would an attorney or accountant. You should consider their experience and knowledge, rather than personality or charm. Most Ponzi schemes are orchestrated by outstanding salesmen with an impressive personal resume but, apparently, a lack of professional ethics.  Ask about professional accreditations and whether any complaints have been lodged against the firm or individuals involved.
• Ask Questions.  Don’t be afraid to ask your investment manager tough questions, such as “What exactly am I investing in?”  You need to make sure you understand the plan that is laid out for you.  It is also a good idea to have your children in on the planning so that they can also understand exactly what is being done.
• Demand Detailed Reports.  Most perpetrators of Ponzi schemes send periodic reports to investors with limited information included. This is a major red flag. Honest investment firms provide very detailed, professionally prepared reports on a regular basis, generally monthly, quarterly, annually or all three. Reports should include clear details about any changes in your assets – whether you’ve made or lost money – and most will tell you where your assets were invested.
• Be Patient.  The promise of significant wealth via one successful investment is appealing, but investing should be an intellectual, rather than an emotional, exercise. Think more about what can go wrong than what can go right. Deal with established investment managers.

If you want to find out about options available to you, give Simasko Law Offices a call at (586)468-6793.