Wall Street executive Andrew Caspersen pleaded guilty earlier this week to charges that he scammed investors out of millions through a scam in which he lured investors with representations that he would earn 15% or more on their investments by lending money to private equity funds through secured loans that he claimed were “practically risk free.” Instead he used the millions he collected from investors to fund his personal option buying, pay out earlier investors with the money gained by later investors, the hallmark of a Ponzi scheme, and support his self proclaimed “pathological gambling problem. Ultimately, his losses totaled more than a hundred million dollars.
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. In addition, a red flag present in both the Bernie Madoff scam and the Ponzi scam allegedly operated by Caspersen 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 broker-dealer separate from your individual adviser. This way the actual funds and investments are monitored by a third party.