Four Signs Your Awesome Investment May Actually Be A Ponzi Scheme

Ponzi schemes get a lot of attention when big ones go bust. Bernie Madoff, of course, got a ton of attention when his $20-billion con collapsed in late 2008. So did Allen Stanford, who was recently sentenced to 110 years in prison for scamming investors out of more than $7 billion over two decades.  But it turns out that the Ponzi industry is much broader and deeper than even the biggest blowups suggest. That's one lesson of a slim new book, The Ponzi Scheme Puzzle: A History and Analysis of Con Artists and Victims, from Boston University Law Professor Tamar Frankel.

Here are four warning signs Frankel details in her book:

1. High return! Low risk! It's a bedrock principle of investing that higher returns generally bring higher risk. If you're promised the opposite — a big payoff with little downside — be suspicious. A close corollary is Madoff's angle: Incredibly consistent returns whether the market goes up or down.

2. Where does the money come from? It's complicated. Con men often tell complex stories to explain their fantastic returns. Charles Ponzi's original scheme purportedly invested in international postal-reply coupons — a kind of international stamp that could be cashed out in multiple currencies. Other scams have claimed to involve synthetic rubies, windmills, hydroponic farms, latex gloves, ambulance retrofitting, Canadian telephone-number leases, carpet contracts and bus shelters…..

Find out more at http://www.npr.org/blogs/money/2012/07/30/157606305/four-signs-your-awesome-investment-may-actually-be-a-ponzi-scheme