I recently had meetings with several new customers working on retirement plans and had the same concern, "Madoff" incident, which most people of today have. This is a very reasonable and reliable threat. In this article, the "Madoff" case (originally named after the name of Ponzi who was called the Ponzi scheme and married millions of people in the 1920s), how to detect it, 1 I'll do it once I find one. If you realize how it actually works it is really easy to avoid in practice.
What is "Madoff / Ponzi Scheme"?
"Ponzi Scheme" is a way to deceive customers making little investment assets
Investment package (Madoff used this in the form of a hedge fund). It started in Charles Ponzi in the early 1920's. He seduced the investor by offering returns that can not be invested elsewhere (at that time it was a coupon stamp, not a stock market). The method of financing is simple, but investors pay investors from their own money or the funds paid by other investors. The scheme pays itself and the schema. This brave Madoff is an excellent opportunity for hedge funds.
Hedge funds are registered under the "Blue Sky" Act (the law that all investments that someone publicly can put in assets must be registered by the government). However, Madoff used it to see how hedge funds are being regulated. At the moment, hedge funds are not regulated like ordinary investment. In fact, it is regulated only in the sense that it must be registered and applied by trading rules. However, the SEC said that by regulating hedge funds, closing lots of hedge funds has made it possible to speculate on why you can guess.
They usually catch how you get:
1) The person who sells the item pays them investment money and disappears (this is obvious)
2) Schema fails to validate claims
3) Market panic like the 2008 crash (everyone wanted to escape investment). This is a red flag if a person like Madoff "invests" your money and it does not seem to have it when you ask for it.
4) Self-collapse. This is usually caused by self-flowing or simple laziness.
Red flags you should know:
1) If you give discretionary authority and the investment adviser offers your own account, not a broker / dealer or custodian account, many things can go wrong and faster. Madoff was doing this combination.
2) If you can not research it, please purchase it from elsewhere or see the quotation of an entirely different service (ie: Blomberg.com, Marketwatch.com etc.)!
What you should do if you expect something:
First of all, please follow the golden rule. "If it is too good that it is true, that's it." Every investment related to the market has (to some extent) volatility, even bonds! So, like Madoff, investors should be aware that advisors have consistently incredible achievements. A consistent few track records are CDs and fixed / multiple pensions (or guaranteed index pensions) because of how these products are made. Treasury bonds and municipal bonds are reliable due to full credit and tax but are not voluntary, not guaranteed consistent goods as mentioned above. In the case of mutual funds that hedge funds and advisors actually guarantee, investors should be careful.
Note: It is illegal in general that advisors promote results in the market. In such cases, please report it to State Attorney General / FINRA / SEC.
Please look at the product. Investments like hedging have a notorious reputation for being sneaky within the community of advisers (not wrong - although I personally recommend it, there are many schemes in the community .
Please do your homework when you invest next time to those who promise the world.
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