Mar. 18, 2006 - Ponzi Schemes

You may wonder why I've made such a fuss lately about being skeptical of "too good to be true" claims and investigating thoroughly before taking any action.  Some readers have commented on other blogs or forums that these schemes are so obvious that I'm just wasting my time warning people.  They believe that anyone should be able to spot bad deals and hustlers right away.

That may be true for some or most of you, but there are many people who get taken in by deception.  Example that I have written about recently include Robert Kiyosaki's Rich Dad Poor Dad and Kirk S. Wright's International Management Associates investment company.

That's just the tip of the iceberg.  The world is full of charlatans preying on trusting individuals.  You must always be vigilant.

Now I've come across this story about a Ponzi scheme involving members of the First Church of Christ - Scientist (a cult) in which about 50 investors lost over $47 million! 

How were these investors duped?  First, they were too trusting of a fellow member of their church and didn't ask the good questions I outlined in my "Too good to be true?" post.  Second, they were blinded by their own greed (surprise, surprise).  Check this out from the Reuters story:

"As a Church of Christ Scientist practitioner, [Eric] Resteiner exploited trusting church members, to whom he bragged of having a 'God-given gift' as a trader, prosecutors said.

 

Promising no-risk, 50-percent annual investment returns, he claimed to be one of the world's few traders able to do bank debt deals usually reserved for the rich, officials said.

 

Between 1997 and 2000, dozens of people, many of them church members, gave Resteiner and associates millions of dollars, authorities said. Some of the investors got money back, but most of that was taken from others' payments in what is often called a Ponzi scheme."

Fifty-percent annual returns!  No risk!  These folks were taken in by their own greed as much as they were by a smooth-talking crook.

Some of you may not know that a Ponzi scheme works by using money from later investors to pay off earlier investors.  It's a house of cards that works for awhile until it gets too big and collapses, leaving most folks empty-handed, as happened in this case.

So where did all that money go?

"Resteiner kept a large home in the Bahamas, a 176-room villa in St. Moritz, Switzerland, servants, a 110-foot (33 meters) yacht, an airplane, a helicopter and luxury vehicles, officials said."

Investors beware!  Evaluate every claim with a critical eye and also consider the motives of the person proposing the investment or selling you their system.  What's in it for them?  Remember, if it's too good to be true, it probably is.

Finally, evaluate your own motives.  If you're picturing getting rich quick, vast wealth, or quitting your job then you are blinded by greed.  All rational thinking has been suspended.  You will not be discerning and will likely prove the old adage that "a fool and his money are soon parted."

That's why I keep writing about this topic.

Related Tags: Ponzi schemes, Robert Kiyosaki, Rich Dad Poor Dad, money, finance, scams, get rich quick, Eric Resteiner

Mar. 18, 2006 - Untitled Comment

Mar. 18, 2006 - Goodness!