How to Avoid a Bernie Madoff Scam

Rebecca Brighton: If it sounds too good to be true it probably is, especially when it
comes to money. Hi I’m Rebecca Brighton and welcome to
WatchMojo.com and today we’ll be learning more about ponzi schemes
and how to avoid them.

What is a ponzi scheme? How is it set up?

Marc Larente: A ponzi scheme is basically one person benefiting from another person
and as soon as the first investor comes in we’ll only be able to reap a
benefit because another investor comes in afterwards that next investor
invest their money pays for the first person that comes out. It’s also known
as a pyramid scheme. The first person at the top of the pyramid makes all
the money that people at the bottom of the pyramid lose all their money.

Rebecca: Is there ever a scenario where a ponzi scheme might succeed or that it
might be a good investment?

Marc: A ponzi is a scam it’s a con. The only way you can make money is if
you’ve made it on the detriment of somebody else so I would basically say
no, you should try to avoid these all cost no matter if you get into the
beginning or at the end.

Rebecca: What kind of terminology is important to keep in mind when discussing
this kind of fraud?

Marc: If everybody knew it was a ponzi scheme they wouldn’t be investing in
the first place but terminology that you can listen to find out if it will
become or is a ponzi scheme is people guarantying something that doesn’t
really make any sense. Something better than what makes sense. If market
rates are currently running 3 or 4% some of the pharmacies in 12 or 15 or
more asking you to invest quickly, asking you to put money in a overseas
accounts and make checks be able to the wrong part anything that stands
out from the normal you know day to day activity that you usually see
often you actually asks yourselves an extra questions. The more questions
you ask sooner or later some of these are going to sound uncomfortable
and you’re going to sort of get the idea that something wrong is going on.

Rebecca: Now in terms of the Bernie Madoff case which is obviously a recent
example of a ponzi scheme how was he able to get away with this for so
long?

Marc: When things are going well when the markets are going up and so on and
you say I’m going to get you a 10% rate of return its really easy to do
when the markets are going up and the markets are going up and the
markets going up there’s more and more money coming in all the time.
His ponzi schemes get bigger and bigger and bigger as soon as the market
goes down and people started to take their money out but then realize
there’s no money left and to predict other scheme the whole situation falls
apart.

Rebecca: What can we learn from the Madoff case what signs might alert us to the
fraud?

Marc: Some of the wealthiest people in the North America were invested and
obviously overseas at the same time we’re invested the Bernie Madoff
people came in and said that how could it be wrong, how could it be a
fraud, how could it be anything if these people are invested obviously
there’s not any risk involvement. It just proves every single time no matter
how big or how small you are you have to ask the right questions and the
right questions is you know actually safety, how safe is my investment.
How can I get my capital out and so on, there’s nothing wrong with asking
questions so me of the things that people get caught in is the terminology
gets to complicated the terms all the documentation. The prospectuses, the
research and they say oh somebody must have looked into it.

Rebecca: Thank you very much.