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The dangers of Ponzi schemes

Many Washington residents probably associate Ponzi schemes with Bernie Madoff, the investment advisor who is serving a 150-year prison term for conniving the largest such scheme in U.S. history. While this Ponzi schemer was stopped, many more exist and still operate fraudulent investment deals.

Ponzi schemes rely on money from new investors to pay existing investors. Instead of the investments growing as promised, new funds are simply used to reimburse existing investors. When the money runs out, the Ponzi scheme implodes, and all the investors involved lose the money they were promised.

Investment opportunities that promise high returns and low risk should be avoided. Generally, high potential return investments come with high risks, similar to lottery tickets.

Investors may also want to beware of returns that are advertised as being highly consistent. While the stock market has tended to go up throughout the past several decades, investment returns are generally inconsistent from month to month. Therefore, returns that hardly vary should raise a red flag.

Other types of investments to be wary of are unregistered investments and investments offered by unlicensed sellers. Investments should be registered with state regulators or the SEC. Registration gives investors knowledge, including information about the company's services, products, finances and management. People should also be slow to buy from unlicensed sellers as state and federal laws require all companies and investors to be licensed.

Those who have been accused of running fraudulent investment schemes could face serious legal repercussions. A criminal defense attorney could help defend someone who has been charged with a white-collar crime.

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