Sunday, December 14, 2008

Ponzi Scheme - Fallout

The fallout from the $50B Made-Off Ponzi scheme is starting to become public. From rich socialites in Palm Beach to Long Island Hospital foundations, the losses are turning out to be huge. Sadly, it appears some people placed all their money under Made-Off's management and it appears they are totally wiped out.

As a risk management professional, anyone entrusting their money to an investment advisor needs, at minimum, to adopt the following risk controls:

  1. Do not trust and always verify;
  2. Do not allow the firm that manages your money to "hold" your money. Hire a separate firm to serve as "trustee" to hold the funds.
  3. The trustee will send copies all account statements directly to your accountant (who has no ties to the investment advisor) or yourself. Using this information, you should be able to reconcile the trustee statements to the investment advisor "claims."


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