Certified fraud examiners at Resolute Commercial Services anticipate increased focus on and discovery of Ponzi schemes during the remainder of 2021.

“Ponzi schemes thrive when the economy is doing well and people have extra cash to spend,” says Nicole Manos, senior managing director at Resolute and one of the top forensic accountants in Arizona. “It’s after a year like 2020, when the economy takes a dip and people become more careful about how they spend their money, that we see Ponzi schemes begin to be uncovered.”

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By definition, Ponzi schemes use money from new investors to pay earlier investors. This can continue for years, until the scheme becomes unsustainable because new investors can’t be found or too many investors ask for their money back at the same time.

Many financially successful business owners and individuals become targets of Ponzi schemes because they have the money to invest and are looking for high returns, according to Manos.

She and her team of fraud examiners at Resolute recommend asking yourself the following questions before moving forward with an investment.

1. Who will have custody of my investment? When making an investment, a custodian is in possession of your investment account and issues statements about transactions related to your account. A manager executes those transactions for you. Fraud most often occurs when these two roles are handled by a single person. Make sure any investment is paid to a broker-dealer firm regulated by the Financial Industry Regulatory Authority and backed by the Securities Investment Protection Corp. Be wary of any investment manager who wants complete control of your money or who asks that checks be made out to him or her.  

2. Am I being promised consistently high returns with little or no risk? If an investment seems too good to be true, it most likely is. All investments carry some degree of risk. Those promising larger potential returns typically involve more risk. Investments tend to fluctuate over time, so be skeptical of investments that generate positive returns regardless of market conditions. Ponzi schemes typically advertise 10% – 12% returns.

3. Is this a registered investment from a licensed seller? When people see a friend, family member or colleague they know and trust making great returns on an investment, they can be more easily deceived by one of these schemes. Before signing off on any investment, make sure that it is registered with the Securities and Exchange Commission (SEC) or with state regulators. Registration is important because it ensures access to critical information about the company’s management, products, services and finances. Federal and state laws require investment professionals and firms to be licensed or registered as well.

4. Can you withdraw your investment at any time? Ponzi scheme operators may make it difficult for you to cash out or will try to stop you from cashing out by offering higher returns for not moving your money. Errors in your account statements can also be signs that your funds are not being invested as promised.

For more information about an Arizona Ponzi scheme that was uncovered during the last recession, listen to the Bernie Madoff of Scottsdale episode of the Resolute podcast Problems Solved.

If you suspect you are a victim of a Ponzi scheme or that someone you know is running a Ponzi scheme, report it to the Securities Division of the Arizona Corporation Commission.