Jan 31, 2023
Like a man struck by lightning three times, billionaire oil baron Robert Belfer has the dubious distinction of falling prey to Enron’s corruption, Bernie Madoff’s Ponzi scheme and the implosion of cryptocurrency exchange FTX.
To say this 87 year old is a financial fraud survivor is putting it mildly. Madoff took him for tens of millions. Kenneth Lay’s energy company drained him of billions. Now, as first reported in the Financial Times, Belfer stands to lose a total stake of $34.5 million in Sam Bankman-Fried’s crypto company.
Advertisement
Cold comfort, perhaps, but in every case Belfer was far from alone in losing a fortune. With FTX, other wealthy Americans like New England’s Patriots owner Robert Kraft and Tampa Bay Buccaneers quarterback Tom Brady have been sacked, if you will.
So arises the question: If wealthy investors backed by a team of advisers can fall victim to fraud, how can everyday people ever hope to avoid the same fate? Here are three ways to make sure you never get taken.
1. Make sure it registers to check the registration
While some frauds may be impossible to detect, others give telltale signs. First ask yourself before making any investment: Is it registered? Most investment products must be registered with a state financial institution, making it easy to research whether they’re legitimate.
You’ll also want to check whether a person or company has a license to sell investments, which is required in most states. Knowing that an entity is approved to make investment recommendations goes a long way towards inspiring confidence.
Need extra help verifying a company or person? Contact the Securities and Exchange Commission’s Office of Investor Education and Advocacy. And in the event you run into a fraud, you can file a complaint by contacting the Financial Industry Regulatory Authority (FINRA).
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
2. Say no to FOMO – and know what you don’t know
Even the smartest investors give in to the “fear of missing out” (FOMO). FTX reeled in countless people who had no idea how cryptocurrencies work.
So if you’re worried that an investment isn’t in your wheelhouse, that’s actually a good thing. It means stay away. Otherwise, if you don’t know its general workings, you’ll also have no idea what hit you in the event of a fraud.
Scammers hope that you’ll abandon all logic and due diligence in the rush to get rich. “Act fast! Who knows how long this will last?” Remember that time is in fact your greatest ally in investing, while haste is the enemy.
Advertisement
Without doing some basic research, how can any investor know a company’s background, the track record of its players, or what it even does? Give your FOMO a chill pill; keep your impulses in check. The classic Benjamin Graham investment book, the one billionaire Warren Buffett treats as a bible, is called “The Intelligent Investor” — and not the ignorant or impatient one.
3. Right now, get it in writing
With any and every legitimate investment opportunity, you should be able to take your time, read through the documentation and learn everything you need to know about the product.
The documents should be easy to understand if a company hopes to bring on investors. If you’re confused, or come across fantastical claims without proof to back them up, take pause. Scammers play on emotions, not deliberative thinking. And remember: No legitimate equity investment will guarantee you a return.
Unfortunately, the online world gives fraudsters ample opportunity to avoid documentation and whip up hype. Social media not only gives a crook a megaphone, but also an easy escape route once you invest, if that’s the only place you can find them.
Getting it in writing means you’ll know exactly how to contact the investment company, point person or broker — and learn who they are in the broader financial sphere. Why would a scammer want you to verify their identity, let alone find them once you sense something’s off?
Read More: Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Bottom line: It truly pays to ask
The most sophisticated scams are hard to spot, and the scammers themselves often fool some influential people. Enron’s Kenneth Lay counted President George W. Bush as a close friend. Madoff’s roll call of famous investors included Kevin Bacon and Kyra Sedgwick. And when the dust from FTX settles, expect to see many prominent names joining Belfer, Brady and Kraft.
So ask questions. Be skeptical, especially if huge returns are promised and urgency runs high. Brokers who make their living by helping investors find solid opportunities will be happy to help you get all the information you need and ask to see. Theirs is by law, and by conscience, a fiduciary responsibility to put you and your money first.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Amy Legate-Wolfe is an experienced personal finance writer and journalist. She has a Bachelor of Arts in History from the University of Toronto, a Freelance Writing Certificate in Journalism from the University of Toronto Schools, and a Master of Arts in Journalism from Western University. Amy has worked for Huffington Post, CTVNews.ca, CBC, Motley Fool Canada, and Financial Post. She is skilled at analyzing trends and creating content for digital and print platforms. In her free time, Amy enjoys reading and watching British dramas on BritBox. She is a mother and dog-mom to a Wheaten Terrier.
