Donald Milne III was recently convicted and sentenced to prison for operating a Ponzi scheme involving the sale of unregistered securities of Instaprin Pharmaceuticals, a company owned by him tht purportedly was developing a fast-acting form of powdered aspirin that Milne said could instantly stop heart attacks and strokes.  Milne made numerous false representations about his company to lure investors into buying worthless securities.

Over the years Ponzi schemes have been used by many scammers to steal billions of dollars from unwitting victims who made the mistake of investing their money with such criminals.  Although Charles Ponzi was not the first to use the technique of paying off early investors with the investments of later investors in an effort to make a total sham look as if it is a profitable business, that dishonor should go to Sarah Howe who first used this scheme in the 1870s, it was Ponzi in 1920 who perfected the scam to steal millions of dollars from unwary investors in his scheme through which he told them that he was able to take advantage of fluctuating currency values to purchase international postal reply coupons at a discount and then sell them at face value in the United States.  Ponzi promised, and delivered to early investors, a 50% profit on investments within 45 days and a 100% profit within 90 days.  Of course, the entire scheme was a total fake, but eager investors blinded by their greed flocked to him to invest.  Eventually, as ultimately always happens in a Ponzi scheme, the scam was exposed and Ponzi went to prison.

TIPS

Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her.  You can also check with your own state’s securities regulation office for similar information.  Many investment advisers will not be required to register with the SEC, but are required to register with your individual state’s securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.

Generally, before stocks, bonds or other securities can be sold to the public, they must be registered with the Securities and Exchange Commission (SEC) although in limited instances, the SEC does allow exceptions to this rule.  However, anyone considering investing in unregistered securities should be particularly thorough in their investigation into the investment because unregistered securities have often been the basis of many scams.

It is also important to remember that you should never  invest in something that you do not completely understand. Milne’s worthless powdered aspirin would not have withstood through research by potential investors.  You also may want to check out the SEC’s investor education website at www.investor.gov.  Scammers can be very convincing and it may sound like there is a great opportunity for someone to make some money, but you must be careful that the person making money is not the scam artist taking yours.

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