Charges were recently brought by the Securities and Exchange Commission against former University of Georgia football head coach and member of the college football hall of fame, Jim Donnan in regard to operating an eighty million dollar Ponzi scheme by which he stole money from other college coaches and former players by luring them into a phony business that he promised would bring tremendous profits. Instead, the funds of later investors were used initially to pay off earlier investors in order to make the investment look good while Donnan, according to the SEC took the lions share of the funds invested for his personal use.
This is a good cautionary tale of two types of scams. The first is obviously a Ponzi scheme scam. Always beware of investments that promise unreasonably high returns and never invest in anything that you do not completely understand. You also should always do your own due diligence to check out the investment and the people touting the investment before putting in any money. The second type of scam is called affinity fraud which occurs when people let their guard down when the person proposing the investment is “someone like us.” People trust people who are like themselves and do not do the proper due diligence. Trust me, you can’t trust anyone. When someone appeals to you for an investment and they are people you know or of the same ethnic group, religion, national origin or any other similar characteristic to yourself, that is the time that you must be the most careful.