Due Diligence: 10 Steps to Avoiding Ponzi Schemes and Financial Fraud

by Karen C. Altfest

Due Diligence: 10 Steps To Avoiding Ponzi Schemes And Financial Fraud Splash image

Bernie Madoff is now behind bars. But the uncovering of his enormous and long-running Ponzi scheme, and the fraud committed by several other financial hucksters, highlight the importance of asking the right questions and doing your own due diligence before selecting an advisor or participating in an investment.

What areas should you focus on when performing a due diligence review?

Here are 10 basic steps all investors can take—as well as certain indicators that should serve as red flag warning signs of the potential for trouble down the road.

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Karen C. Altfest , Ph.D., CFP, is a principal advisor and executive vice president of client relations at Altfest Personal Wealth Management, a fee-only financial planning and investment management firm founded in 1983 and based in New York City. She is a frequent speaker on the subject of women and money, and conducts educational seminars for female clients, recent widows and people looking to retire.


George Theodorakos from Missouri posted about 1 year ago:

I was a "victim" and didnt do my due diligence with Hammond Financial out of Florida...Mr Hammond was more of a salesman than financial planner.....

I still am asking how do I make sure someone has my best interest at heart....I live in st. louis and am looking for a reputable advisor who has my interest instead of making money for themselves....

Robert Ownby from Alabama posted about 1 year ago:

Very good advise.

Rudolph Heider from Missouri posted about 1 year ago:

In my opinion, nothing is better than doing and learning for yourself. Study the markets, read financial reports and learn from mistakes.

Patricia Treece from Oregon posted about 1 year ago:

I was advised by my tax man, a CPA and a financial planner, as well as employed by a venerable company, and my broker, who worked for a well-known brokerage to sell my bonds and get into stocks just before the big crash in the 1990s. My gut said don't; my mind said you are just a person with no expertise so follow these men, the second of whom you know has always dealt honorably with you. So I lost a very large sum and it took years to save up again. What I took away was even well-meaning experts often can't foresee what is around the corner. Since then I have managed my own money so I have only myself to blame for my investments. P Treece, Portland, OR

Vaidy Bala from posted about 1 year ago:

I live in Canad and the comments reflect the same human greed versus actual investor help. Do not be deceived by any number of titles. Always ask how many years experience, fees, references and success stories before parting your CENT. It is your money and take the best selfish interest to protect it and find out by doing the home work yourself against all others' claims.

Joe Meadows from Texas posted about 1 year ago:

Patricia Treece's penulitmate sentence is pure wisdom.

Richard Dawson from Illinois posted about 1 year ago:

When I sold my farm I invested my money in stocks. I was inclined to do it all myself. Partly to convince my wife, I talked with a cousin - a partner in a Government Bond broker.

He said "Richard, nobody cares as much about your money as you do". So I went on my own.

15 years later I am very glad I did as I have never been "scammed".

EM from Colorado posted about 1 year ago:

If you don't understand it, you should not invest in it. If you do understand it, you are sufficiently wise and intelligent to manage your own money. Never gave my money to anyone to invest, never will. Listen to advice and educate yourself, but keep the keys to the vault in your own pocket. Helps you sleep at night. I cannot tell you the stupid and self-serving advice I have heard from financial planners.

Roger Warner from Nevada posted about 1 year ago:

I took (paid for) advice from a man who gave himself credentials that strongly inferred he had advised countries on the management of their economies and their banking. He sounded like a guru in every sense of the word. His advice was limited to a select few (his story) and profits were going to be amazing due to his inside knowledge. His name is Neil George. I had a lot of advise but not much of it was good. I now have about $14,000 of bankrupt mortgage company stocks I look at every day in my portfolio. I don't hear from Neil any longer. He has moved on to a new group of naive investors. rgwarn Nevada

Richard Abbott from Florida posted about 1 year ago:

I loss some of my retirement money in a Ponzi scheme. I should have heeded Warren Buffet's 2 rules - if it sounds too good to be true it probably is and second if you don't understand it don't buy it!

This outfit was in business for 6 years and the due diligence showed no indictments. Unfortunately this outfit was under investigation for suspicious activity but this type of activity is never recorded in the due diligence process - so there is no way to know about it. I think this type of investigation should be listed in due diligence - who would want to place their money in an outfit that is under investigation for suspicious activity???


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