Scam of the day – December 10, 2014 – SEC charges investment advisor with fraud

The SEC has brought fraud charges against Levi Lindemann, an investment adviser, accusing him of stealing almost a million dollars from elderly investment clients.  According to the SEC, between the years of 2009 and 2013, Lindemann collected money from investors only to use the money for his own personal use.  By paying off older investors with the funds supplied by newer investors, he made it appear that he was making substantial profits for his clients.  This is the mark of a typical Ponzi scheme, pioneered by Charles Ponzi at the start of the twentieth century.  Lindemann provided clients with phony account statements and forged documents to make it appear that his clients had indeed invested in legitimate investments.


The rules for protecting yourself from investment scams are always the same.  Before investing in anything, you should make sure you understand the investment and carefully investigate both the investment and the person advising you to make the investment.  Anyone carefully evaluating Lindemann’s scheme would have found that it was phony.  In addition, a red flag in both the Bernie Madoff scam and the Ponzi scam allegedly operated by Lindemann is when the person advising you to make the investment is also the custodian of the account.  They should never be the same person.  Always have a separate broker-dealer from your individual adviser.  This way the actual funds and investments are monitored by a third party.

Scam of the day – January 18, 2014 – Investment advice from Bernie Madoff

Convicted Ponzi schemer Bernie Madoff who stole 50 billion dollars from unsuspecting victims may be the last person from whom you would accept investing advice, but in fact, his advice, as contained in a recent jailhouse interview Madoff gave to the Wall Street Journal does have good advice for people hoping to avoid the fate of Madoff’s many victims.  As you may remember, Madoff did not invest any of the money he received from investors who gave him money.  Instead, he used the money for his own purposes and paid off older investors with money received from newer investors.  Ultimately, this house of cards came toppling down, as it does with all Ponzi schemes when too many people ask for their money and the fraud becomes exposed.


With great “chutzpah,” in the interview, Madoff blamed his victims for their losses.  He said that his investors were “sophisticated people” who should have known better.  “People asked me all the time, how did I do it.  And I refused to tell them, and they still invested.  Things have to make sense to you.  You should ask good questions.”  And about this he is correct. No one should ever invest in anything that they do not totally understand.  In Madoff’s situation, with 20/20 hindsight we can see that his investment strategy was impossible, but investors should not have relied on him.  They should have tried to understand the strategy and if they could not understand it, which no one would have been able to do, they should not have invested.  In addition to Madoff’s advice, I would also warn you against ever investing with an investment adviser such as Madoff who both makes the investment decisions and also holds the assets.  These activities should be divided between an investment adviser and a separate broker-dealer who actually holds the investments.  Had this elemental rule been followed by Madoff investors, they would have immediately known that there were no investments.