Test your knowledge on common investing terms and strategies and current investing topics. Learn about investing risks in certain companies that provide exposure to China-based businesses. Are you prepared for your financial future? Use this checklist to get started. Regardless of the technology used in the Ponzi scheme, most share similar characteristics:. Securities and Exchange Commission. Wealth Management. Investing Essentials. Penny Stock Trading. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
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Company name chosen to engender strength, stability, nobility, and other salient attributes. Capitalizing on comfort and affinity. The promoter will want to be your friend and seem to care about you, but is doing so to earn your trust and money. Investor testimonials. One should not rely on reputation or word of mouth alone, and should be suspicious of investor testimonials that cannot be checked out, particularly those of more respected or popular investors e.
Professional attestations. One should be suspicious of professional attestations used to create the aura of respectability. For example, the promoter may claim that the government or an industry guardian has reviewed the program and approved it or found nothing wrong with it, or it has been endorsed by industry professionals. Unbusiness-like conduct or disruption of services.
One should be suspicious of promoters who single-handedly run their entire business operation and undertake simple administrative tasks, such as answering the phones and opening mail themselves, or, the other hand, are suddenly non-responsive and extremely difficult to reach. For sellers or dealers, contact the state securities regulator, which for Arizona is the Arizona Corporation Commission, Securities Division , or search the National Futures Association. Research the investment, and find out if it is registered with the proper regulator, such as the SEC or state regulator, or is exempt or except from registration and if so why.
Inquire into and compare the risks with the potential rewards of the investment. Understand the nature of underlying business and its operating history, success rate, who is responsible for its operations and their education, experience, skill and training, investment history; get annual reports, audits, financial statements Seek assistance from and consult an unbiased, trustworthy third party like a unconnected broker or licensed financial advisor, attorney or accountant; get a second opinion.
Ask for written, detailed information, including information on the company, its officers, and its financial track record, documentation of the investment, including its cost, fair market value, and existing and potential markets, and what recourse you would have if you were not satisfied with your investment.
Any guarantees, warranties or refund provisions should be in writing. Ask promoters about their education and experience and what institutions have invested with them, and what commission, fee or any other benefit they will earn through the investment and how and through whom they are paid Exercise due diligence; do a background check and search the Internet regarding the investment and individuals and companies involved in the investment.
For insurance professionals, companies or entities, contact your state insurance department, which for Arizona is the Arizona Department of Insurance at For a realtor or real estate company, contact your department of real estate, which for Arizona is the Arizona Department of Real Estate at , and search its database. For accountants, contact your state accountancy department, which for Arizona is the Arizona Board of Accountancy at , and search the database.
For lawyers, search your state bar, which for Arizona is the State Bar of Arizona, and search the database. For businesses, search the state corporation department, which for Arizona is the Arizona Corporation Commission at , and the Better Business Bureau. For trade names and trademarks, search the Arizona Secretary of State database. A Ponzi scheme and a Pyramid scheme are very similar, as they both involve paying early investors with money from recent investors.
However, in a pyramid scheme, each investor is encouraged to recruit new investors. The early investor earns profits in an amount dependent on the number of new investors he or she brings into the scheme. Unlike a Ponzi scheme, an investor in a Pyramid scheme knows that he or she will not profit unless he or she brings in new investors. In other words, the investor understands the source of the profits, but in a Ponzi scheme, the investor never knows where the investment profits come from.
Pyramid schemes also typically collapse much faster than Ponzi schemes. Since each investor is actively recruiting new investors in a Pyramid scheme, the scheme grows faster, running out of money much faster than in a Ponzi scheme. When considering your next investment opportunity, be sure to ask some basic questions before you invest:.
Most investors can avoid trouble if they ask these questions and verify the answers with information from independent sources. Investment schemes are often complex and hard to spot. If you believe that you might be a victim of a Ponzi scheme or other investment fraud, an experienced attorney may be able to help you recover your losses.
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