Saturday, December 13, 2008

Massive Ponzi Scheme – Fraud Warning

There is a saying that says you cannot cheat an honest man. While not totally true, the saying does reflect the fact that most fraud involves things that are "to good to be true." If you haven't seen the news, Wall St. legend Bernie Madoff has admitted to costing investors $50 BILLION (YES BILLION) in an enormous Ponzi scheme. In this case, enormous returns were not the red flag, consistent returns were. Year after year, month after month, Madoff's fund made consistent returns beyond what was reasonable. Chasing these "consistent" returns, investors piled in billions despite Madoff's inability to document his strategy or the inability of anyone to explain how he did it.

Moral to the story: If you do not understand how an investment earns money AND loses money, you should not invest in it.

Sources: NY Post, WSJ.Com Madoff Stories

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