Protecting Yourself from Illegal Money Management Schemes
Every year millions of dollars are lost by hardworking honest people who have trusted some dubious organization with their money. It is best to be forewarned about such crooked schemes.
Here are some tips on what you can do to avoid these schemes:
Managed Investment Schemes – These are setups where money is collected from individuals and utilized for investment purposes. You have no day to day control over your funds or knowledge where your money is being invested or to whom it is given.
Cash management trusts, equity trusts, property trusts, agricultural schemes – all such schemes should be thoroughly checked before you make any decision.
Ponzi Schemes – Bernard Madoff has become notorious for his infamous Ponzi scheme that plundered billions of dollars around the world. In such an investment scheme, money is collected with the promise of rich returns. Subsequent deposits pay for the earlier investors and the cycle keeps going.
Eventually the scheme collapses on its hollow core and the last group of investors is wiped out. Remember it is illegal to receive profits from a Ponzi scheme and you can be liable for recovery and penal action.
Pyramid Schemes – Unlike a Ponzi scheme, these outfits promise you to multiply returns when you recruit more investors into the chain. Those who fail to draw in other „victims‟ lose their money. Eventually your „network‟ also withers away, without the golden promises of rapidly multiplying money ever coming true.
The modus operandi of such MLM, binary marketing or chain referral schemes as they are fancily named is to quietly disappear when the base of the pyramid has grown large enough for a massive loot.
What you can check
- Ask for a copy of the company’s audited accounts for the last few years. Ensure that the company is registered with your national registrar of companies or relevant monitoring body.
- Check if the investing company has a license to operate such a scheme. A company with all necessary certification will also have insurance to cover their losses if their project fails.
- Beware of any company that promises disproportionately high returns within a short time. Consult an accountant and lawyer and a local finance authority to investigate such claims.
