As fraud schemes proliferate – are you the next investor to crash and burn?

Abstract

PurposeThe purpose of this paper is to educate investors on the red flags of Ponzi and other fraud schemes and due diligence measures.Design/methodology/approachThe paper examines ways in which fraud is executed in Ponzi schemes and then highlights practical precautions every investor should take to prevent being a victim.FindingsThe research outlines specific red flags that the investors in the Madoff Ponzi scheme and other fraud schemes might have recognized and others in the future should recognize to prevent being the next victim. These red flags are consistent in most Ponzi schemes and investors should institute due diligence in examining their investment firm or manager.Practical implicationsInvestors should be wary of their investment manager and pay attention to the warning signs that they could be involved in a Ponzi scheme. They should insist on seeing detailed audit information and not hesitate to ask questions.Originality/valueThe paper will be of interest to a wide range of individual and institutional players in the investment community who in light of recent events are concerned about being investment fraud victims.