International Law

Red Flags for Bad Investments

Image by elycefeliz via Flickr

Tracy Coenen's has a new book out, about investigating fraud.

"All the talk about Bernie Madoff and others has everyone thinking about Ponzi schemes. Have you invested in a potential Ponzi? It's only natural to be worried, and in my opinion, investors haven't been skeptical enough.

How would you spot a Ponzi scheme? My latest book, Expert Fraud Investigation: A Step-by-Step Guide details some questions you should ask yourself about the investment"

Some of Tracy's tips are:

• Is the company guaranteeing rates of return on investments with them?
• Can their promises be verified in any way?
• Is the company's success dependent on exploiting a tax loophole or other government regulation? If it was possible and legitimate, couldn't more companies do so?
• Are certain parts of the business unusually secret? Is there a general reluctance to disclose key facts?
• Who really works in this operation? Does it appear to be just the owner and a few other people? Does that level of staffing make sense in light of the operations or results touted by the company?

The tips are likely to be necessary, but not sufficient conditions for suspecting a fraud.

They are red lights, which in a perfect world would stop all or most of the fraud traffic.

But, most frauds succeed even in the presence of many red flashing lights.  (This is why there is general antipathy shown to the mark afterwards - weren't those flashing red lights red enough for you?)

The most important gut check you should perform is not on the company; you have to ask yourself why this opportunity is appealing to you now, with your dreams and desires.  And vulnerability.

The con criminal has phantom dream to knock the rational rider off his horse before the craziness begins.

I know of one couple who merely wanted to be "treated better and more personally" by their bank and consequently got sucked up into a Prime Bank scam.

Very reasonable, educated and successful people.

What is your phantom dream?

Full post as published by Misleading Advertising Law on March 25, 2009 (boomark / email).