Even after the highly-publicized fall of Bernard L Madoff and the largest Ponzi scheme in US History, the schemes continue to proliferate. Today we see more Oil and Gas Ponzi schemes because of low interest rates and low returns on investments. People looking for safe harbors for their money are prey for Ponzi scheme promoters who fill the gap with promises of “big money.” These investors are not necessarily greedy, but concerned enough about the future to be willing to risk some of his/her investable funds (1) with an investment of money, (2) due to an expectation of profits, (3) arising from a common enterprise, which (4) depends on the efforts of others. This is the definition of an “investment contract” as defined by the Supreme Courts W.J. Howey case, 328 US 293. Investors should consider this four-pronged test before making an investment and should consider the old adage, “if it is too good to be true, then it generally is!” 

The Ponzi scheme received its name from Charles Ponzi who, in the 1920’s, hoodwinked thousands of New Englander’s into investing their money into an arbitrage with international postal reply coupons used to purchase postage stamps. He promised a 50% return on investment (ROI) in 90 days. When he could not produce the 50% return he used incoming funds from new investors to pay other investors until the scheme failed. ( http://www.sec.gov/answers/ponzi.htm )

How do we protect friends and clients from being lulled into a false sense of security? We can teach them to recognize the difference between a legitimate investment and something pimped by a promoter. Promoters are “Pied Pipers” who attract individual investors who honestly are trying to better their financial position and provide for their family. Promoters are generally well spoken, give the appearance of wealth, may try to appear “godly” by quoting scripture, and usually offer to pay for the lunch or dinner over which the deal is discussed. The promoter today is... Read More