How to avoid becoming a victim of a ponzi scheme

A ponzi scheme is commonly well thought out and orchestrated.  But the 2NEWS Investigators found simple things you can do to protect yourself from ever becoming a victim.

Mention the name Bernie Madoff and the words ponzi scheme probably come to mind.

In 2008 Madoff admitted to stealing billions from investors... masterminding the largest ponzi scheme in history.

He was sentenced to 150 years behind bars.

You don't have to travel in New York's social circles to be a victim of a ponzi scheme.

Assistant US Attorney Michael D. Anderson says, "One thing we have seen in these scams is that people are often brought in by friends and family members or people from church who are well-meaning but fallen to the victims themselves - so people should do their own research."

Anderson says Ponzi schemes are a growing problem in the U.S..  In fact, one recent case had almost 400 victims and a staggering $16 million dollars in losses.  Law enforcement and Postal Inspectors want investors to know the signs.

"Something people need to be aware of is investments offering to return 40% or even 20% - something that is much more than what they can get in a normal Investment - often those are frauds or schemes."

U.S. Postal Inspector Troy Dickinson says,  "One other thing consumers should be aware of - is when someone claims to be a stock broker - you can research it on your own with websites such as the SEC."

How does a ponzi scheme work?  The bogus investment operation pays out returns from money paid in by the next group of investors, rather than from profits earned.

If investors aren't cautious, they can get caught up in the cycle and lose everything.

Dickinson says,  "Some had to delay their retirement - they cashed in their 401K - they lost everything they had. On top of all that, when the suspects were arrested, there was no money left to give back to the victims.

Experts recommend you do your research.  Don't invest with anyone until you thoroughly check them out.