For the most part I wanted to do something on "segregation of duties" in avoiding Ponzi schemes. Even if something doesn't start out to be a scam, people change. In more than one instance bad returns have led to doctored accounts and fresh money paying old clients. Conversely, little if anything I have ever seen promoted on the internet by unlicensed individuals warranted a second look. Would say if you are wondering about an opportunity viewed on Youtube you can stop reading now, but it does take some time to cobble this stuff together so humor me.


A Ponzi is one the simplest of scams to set up and execute. A promoter creates a story of how they are going to generate returns, collects money, and pays old investors with money from new investors. The buzz feeds on itself since investors are being paid and are encouraged to recruit people they know, usually for a commission. This will last as long as they the perpetrators keep the money in their pocket, and/or find fresh money for the scheme. Once withdrawals exceed available funds the excuses start and the scheme will collapse.

Sounds trite, but the first step to being conned is sending someone your money. Before writing the check nail down who will be reporting your account balances and who has access to your money. Let's say you hire a money manger to invest for on your behalf. They may have permission to make trades in your account, they should not have access to transfer funds out of your account. An independent third party like a major broker or bank should be producing and mailing the account statements. The investment adviser may be mailed a COPY, but should have no access to the original, and it must be mailed direct from the custodian to you. (Once this chain is broken, the potential for fraud is magnified.)

A redundancy can be placed on top of the above with email or text alerts that notify you of any account changes or requests for funds.

If an investment situation involves writing a check to the the promoter, them producing the statements and processing requests for funds watch out.

http://www.ey.com/Publication/vwLUAssets/EY_Segregation_of_duties/$FILE/EY_Segregation_of_duties.pdf

*The above link has some useful ideas for business owners to avoid employee theft.