Investor Alert
Think You May Be Involved in a Ponzi Scheme?
Look for These Red Flags
New York, New York, January 7, 2009—
Ponzi schemes are currently a hot topic of conversation, most notably the one perpetuated by the now notorious Bernard Madoff. The collapse of the Bernard Madoff Ponzi scheme has cast a glaring light upon other questionable investment deals, revealing numerous red flags that have many investors worried.
The Ponzi scheme investment scam isn’t limited to Wall Street and high-profile investors. It can be found in an ordinary suburbia such as Long Island, where everyday, ordinary individuals are lured by slick promoters to invest in a deal that looks too good to be true.
A large number of concerned investors across Long Island have called Kessler International, an investigative firm specializing in forensic accounting and computer forensics, in response to recent press releases by Kessler regarding an apparent Ponzi scheme on Long Island.
In late summer 2008, Kessler investigated an apparent fraudulent investment operation on Long Island, and reported the findings to the NYS Attorney General, the Suffolk County DA, the Suffolk County Police Department and the FBI. To date, authorities have not acted upon the information provided by Kessler, and the Ponzi scheme appears to be showing signs of a collapse in the near future, meaning many investors will lose their money.
This mirrors events surrounding the Bernard Madoff Ponzi scheme, in which it was revealed that regulators were given information regarding the scheme as much as ten years ago, but chose to do nothing, resulting in the debacle seen in recent headlines. On Long Island, the Ponzi scheme has also been allowed to continue to attract new investors, while regulators seemingly ignore all the obvious red flags.
A typical Ponzi scheme such as the one currently residing on Long Island acts as a ‘bridge loan’ company, which works as follows: John Doe wants to buy a profitable liquor store business, but in order to get the upfront cash required to do so, he has to sell off a dry cleaning business that he owns. He is prepared to offer promissory notes paying 20-50 percent within six to nine months. A loan company provides investors the opportunity to put up the money with the promise of a high return.
However, the reality is that there is no John Doe. The promoter uses the borrowed money for his personal use. The operation is fueled by a growing crop of investors who instead of cashing their promissory notes upon maturity, agree to new ones in order to accumulate additional profits.
Ponzi schemes masquerading as legitimate investment operations often raise several red flags that should make any potential investor extremely wary.
• Potential investors are usually lured into a Ponzi scheme by an appealing high rate of return. If the rate being offered is exceptionally better than what is currently offered in the marketplace, then the legitimacy of the deal should be questioned.
• Before investing, be sure to ask all questions, and always request detailed information in writing. If the promoter appears to have trouble answering questions with specifics, changes his answers, or is reluctant to provide detailed information, it’s another tip-off that this ‘investment opportunity’ may be a Ponzi scheme.
• Are investors encouraged to continually reinvest their profits rather than take a payout? This is a sign that the promoter is using their money to further finance the pyramid scheme.
• Instincts are everything. During the economic crisis blanketing our nation, it is easy for individuals to turn aside common sense in favor of blind desperation or simple greed. But common sense dictates that if a deal looks too good to be true, it probably is.
• Be sure to research the investment company, as well as the promoter’s background. Utilize the internet. It’s a powerful tool, able to provide a wealth of information with just a few clicks of a mouse. A little background research on promoters may reveal shocking details such as criminal records, additional occupations such as record promotion and real estate sales, and an extremely lavish lifestyle, including million dollar homes in places such as Montauk, the Hamptons and Florida, and flashy cars such as Bentleys and Lamborghinis.
· Other flags to watch for include sparse background information on the company website, questionable credentials and licensing of the promoters, generic contact information such as a Yahoo or Gmail email address rather than a professional domain, and additional businesses operating from the same address.
Should you feel that you are already invested in what may be a Ponzi scheme, Kessler advises that you follow your instincts and attempt to pull out your money immediately. The Long Island-based Ponzi scheme has already postponed payout dates, usually indicative of a future collapse as investors are either choosing to no longer reinvest, or new investors are getting harder to find.
For more information regarding the Long Island-based Ponzi scheme and Ponzi schemes in general, see Kessler’s previous press releases at
http://www.investigation.com/press66.htm and
http://www.investigation.com/press70.htm.
For years, Kessler International has been using its expertise in accounting, computer forensics and corporate fraud to investigate financial and cyber fraud. Established in 1988, Kessler International's satisfied clients are comprised of an extensive and distinguished list of Fortune 500 companies and prestigious law firms worldwide. Its diverse staff includes former prosecutors, former law enforcement agents, attorneys, certified forensic accountants, CPAs, certified internal controls auditors, licensed investigators and researchers.
For more information on forensic accounting, computer forensics, and investment fraud, visit Kessler International’s website at
http://www.investigation.com or call (212) 286-9100.