Below are some tips you should follow, in order to be safe of these Ponzi scams
Don't be greedy
Greed shuts your ability to think properly, any scheme that promises ridiculous returns is doomed to fail, also don't invest amounts that you cannot afford to lose. Remember, a thin line exists between business risks and plain stupidity.
Don’t invest in something just because your friends/colleagues/associates do
There’s no guarantee that they’ve done their homework about an investment. Furthermore, if the seller is part of that group, it’s likely everyone trusts this person and won’t have checked into his past or his investments. Many folks who run Ponzi schemes target people who go to their church or belong to their country club. Yes, you can take the referrals of people you know, but you have to research the referrals. Find out why your friends like the seller, what their financial plan is and how they are paid their dividends. Check with professional organisations for information about the seller. Because the money isn’t really invested as it’s purported to be, the scheme requires new investors to keep it going. But those new investors, if no one else invests after them, won’t get their money back. Their money has either gone to previous investors or has gone to fund a lavish lifestyle on the part of the person in charge of the scheme.
Don’t believe the hype
According to www.lawyersandsettlements.com, if something sounds too good to be true, it almost certainly is. Many Ponzi schemes offer ridiculously (and sometimes impossibly) high return rates that seem to operate independent of market conditions. If someone promises you returns of 35 per cent when everyone else is getting three or four per cent, something’s not right.
Don’t invest in anything you don’t understand
You might not be a seasoned investor but you should be able to understand where your money is going and how it will make money for you. Ask questions and don’t let the seller dismiss your concerns. Make sure you understand exactly what’s happening to your money. If the seller doesn’t have decent answers or you don’t understand the investment, walk away.
Don’t invest everything with one person
If you invest with two people, not only are you diversifying your investments, you’re reducing the likelihood that you’ll lose all your money. Yes, it takes time and effort, but if you invest everything with one person and that person is a con artist, you’ve just lost everything.
Avoid emotional investments
If you’re excited about the investment, take some time to go over the details and ensure they make sense. Don’t believe sellers who say you’ll be part of an elite group when you invest your money—the only elite group you’ll be part of is the group of people desperate to get their money back when they find out they’ve invested in a Ponzi scheme. When you get emotional about an investment, you’re less likely to ensure you’re protected.
Learn about finances. Ask questions and demand sensible answers. Don’t let anyone tell you that you shouldn’t get caught up in the details—because the details are important. Demand to see the paperwork—the prospectus or disclosure statement—before investing. You don’t have to be an expert about all aspects of investing, but make sure you understand the basics, so you can tell when something doesn’t seem right.
If the seller gives the names of various companies that you would be investing in, look those companies up to ensure they really exist. Check with the Securities and Exchange Commission to ensure the investment is registered. Check to ensure the seller is licensed.
Understand your investment style
Make sure your financial seller respects that style and your risk tolerance. The SEC lists five questions every investor should ask when considering the next investment opportunity: Is the seller licensed? Is the investment registered? How do the risks compare with the potential rewards? Do you understand the investment? and where can you turn to for help?