There are legitimate business opportunities and legitimate investment opportunities. Separating the good from the bad should not be that difficult if you take your time and do your homework.
Do your research. The Securities and Exchange Commission web site has information on how to check on investment advisers and brokers before investing your money.
See www.sec.gov/investor/brokers.htm for tips and links to databases of licensed brokers, as well as state regulatory agencies.
Dig for dirt. If you are looking to become involved in a business venture, check with the state attorney general’s office and the Better Business Bureau to see if they have any information on the company. If it is not legitimate and depending on the organization’s size and history, a simple web search may also turn up complaints and news stories.
Read the fine print. If you are required to buy inventory, find out if there is a buyback or refund policy. Look into what kind of help the company provides in the way of marketing, advertising and distribution. The last thing you want is to be stuck with a basement full of herbal supplements or cosmetics that you can’t unload.
Educate yourself. Financial matters are by their nature complex. Take the time to understand what you’re getting into. There are many books written for the layperson that explain the different kinds of investments and what to expect when you invest. Once you have invested your money, you should always be able to obtain information on the investment’s performance and receive satisfactory answers to your questions.
Get it in writing. If investing in a business, get all terms and conditions in writing. Anything that you are told in person should be backed up by hard copy. Do not take anything for granted. If it’s not written down, you have no proof that it was ever promised. If the document you are given looks like legalese, take it to an independent attorney and have it read through.
Do not sign anything without fully understanding your obligations and rights. If investing in a fund, ask for a prospectus. All legitimate investment funds are legally obligated to supply you with a prospectus that outlines the fund’s investment objectives and past performance, as well as risks and fees associated with the investment.
Resist the hard sell. Beware of anyone who attempts to pressure you into signing anything or handing over money on the spot. Successful pyramid con artists utilize high pressure sales seminars to convince people to invest in their schemes. They will dazzle you with stories of how their product, service or investment is such a hot item that it will have the money rolling in in no time.
Do not put all your eggs in one basket. Even the first-time investor should have this mantra running through her head. Whatever the amount, don’t commit all or even a large chunk of your savings to just one investment. Even legitimate investments fail from time to time; illegitimate investments fail 100 percent of the time. When money managers talk about diversifying your portfolio, this is exactly what they mean. The amount is not important; what is important is what it represents to you and your financial security.
Trust no one. It doesn’t matter if it’s someone your brother has known all his life, a classmate or a former babysitter. Shared experience or identity does not make a person trustworthy. Pyramid scheme operators rely on their victims to go first to those closest to them, their family and friends, so it is possible that the person soliciting you is not even aware that what they are involved in is a scam.
Do not rely on testimonials. Every pyramid and Ponzi scheme will have supporters whose job it is to rave about how it’s going to change your life and land you on Easy Street. Often these “shills” are part of the racket themselves, especially if they appear in promotional videos. Or they may be victims too, hoping for a big score if they recruit you and others. Either way, if you start seeing pictures of mansions and yachts, run for your life. It’s bound to be a scam.
Seek help. If you think you or someone you know has been targeted by a pyramid or Ponzi scheme, notify the authorities immediately. Contact your local police department. You can also file a complaint with the Federal Trade Commission (www.ftccomplaintassistant.gov) that will be entered into a database accessed by law enforcement personnel worldwide. Although there are exceptions, pyramid schemes are often short-lived, so the quicker you act, the quicker the authorities can act to shut the operation down and bring the perpetrators to justice.