Andy's Got Your Back on those Ponzi promises

Andy's Got Your Back on ponzi schemes

(WMC TV) - An investment firm president's scam is why U.S. postal inspectors are warning consumers once again about Ponzi schemes.

"He took the clients that he built up over 25 years and started selling fictitious loans and over-selling loans," said Postal Inspector Amy Kerkoff.

Inspectors won't name the man, but they said he stole $8 million from dozens of investors.

They said he tricked them into investing in development projects that didn't exist.

Instead, he was using the money to pay off other investors, a garden-variety Ponzi scheme.

Ponzi schemes, or "pyramid" schemes, start with a bogus investment operation. The boss at the top typically makes outrageous guarantees or promises of high returns.

"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," said Asst. U.S. Attorney Michael D. Anderson.

The operation pays out returns from money paid in by the next group of investors instead of from the profits.

As more investors pile on, the pay-outs are diluted. Eventually, they dry up.

"People are often brought in by friends and family members or people from church who are well-meaning, but fallen to victims themselves," Anderson said.

Ponzi scheme leaders often display their wealth as a lure or pose as stockbrokers.

In the case of the unnamed firm president, inspectors pointed out there were warning signs, like crucial paperwork investors never received.

"They get too comfortable and didn't follow up," said Kerkoff. "Do your homework and make sure you get everything linked to your investment."

As we've reported before, one of the sure signs of a Ponzi scheme is the promise of unusually high returns. Always check the credentials of an investment firm and its investments with both the U.S. Securities Exchange Commission and your state's financial institutions agency.

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