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Investment Scams & You: How to Avoid Ponzi Schemes

Investment scams can include promises of high returns for super-low investments that never materialize, scammers posing as financial planners offering useless advice for a hefty fee and illegal securities offered as IRA investments. However, the most common investment scam is the Ponzi scheme. 

What is a Ponzi scheme?

In a Ponzi scheme, the orchestrator promises high returns, often through a fictitious investment opportunity or business venture. Instead of using investments to generate profit, though, the scammer uses these funds to pay returns to prior investors. The scheme grows, with more investors joining, and the scammers at the top of the pyramid making the most money. Eventually, it all comes toppling down, with investors losing tons of money. 

How to spot a Ponzi scheme

Watch for these red flags of a Ponzi scheme:

  1. Unrealistic returns: Ponzi schemes promise consistently high returns that far exceed market averages and legitimate investment opportunities. 
  2. Lack of transparency: Scammers may provide vague or evasive explanations regarding the source of returns or underlying investment strategy, making it difficult for investors to assess the legitimacy of the opportunity.
  3. Promises of exclusivity: Ponzi schemes often use tactics like exclusivity or invitation-only to create a sense of privilege and allure. 
  4. Pressure to recruit new investors: If an investment opportunity requires you to recruit friends and family members as new participants, you’ve likely stumbled upon a Ponzi scheme.
  5. Unregistered or unlicensed operators: Legitimate investment professionals and firms are registered or licensed with regulatory authorities and adhere to strict compliance standards.
  6. Lack of audited financial statements: Ponzi schemes generally lack verifiable financial records or provide falsified documentation to create the illusion of credibility.

Protect yourself from Ponzi schemes

Ponzi schemes are fairly common, but with a little bit of knowledge and awareness, you can prevent yourself from falling victim.

  • Research every investment opportunity carefully, including the background of the individuals or companies involved and the legitimacy of the investment strategy.
  • Consult a trusted financial advisor or investment professional before making investment decisions. 
  • Diversify your investments across different asset classes, industries and geographical regions. 
  • Stay informed and educate yourself about common investment scams and warning signs of fraudulent activity. 

Stay alert and stay safe!

Stark Federal Credit Union
NCUA

Dressler Branch
4100 Dressler Rd. NW
Canton, OH 44718
Office: 330.493.8325
Fax: 330.493.8328

Loan Dept.: 330.493.7602
Loan Dept. Fax: 330.493.1619

Mon. - Fri.
9:00 a.m. - 5:30 p.m.
Sat. 9:00 a.m. - Noon
(Drive-up only)

Cleveland Ave. Branch
3426 Cleveland Ave. NW
Canton, OH 44709
Office: 330.493.8326
Fax: 330.493.8941

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Sat. 9:00 a.m. - Noon

Alliance Branch
1281 S. Sawburg Ave.
Alliance, OH 44601
Office: 330.821.7225
Fax: 330.821.2004

Mon. - Fri.
9:00 a.m. - 5:30 p.m.
Sat. 9:00 a.m. - Noon

Minerva Area Federal CU Shared Branch
(Cash and deposits only)
3570 Union Ave. SE
Minerva, OH 44657

Mon., Tues, Thurs.
9:00 a.m. - 5:00 p.m.
Wed. 9:00 a.m. - 1:00 p.m.
Fri. 9:00 a.m. - 5:00 p.m.

Routing Number
241274598

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