When Investing, Look Beyond the Seller's Name

September 3, 2013
When Investing, Look Beyond the Seller's Name

John McKenney lost $250,000 in a Ponzi scheme. ©Carden Communications

Even if a person selling you an investment has a good reputation in your community, you still need to check out the seller and the investment for yourself. If you don’t, you may be putting yourself at risk for financial fraud. That’s what happened to investors in Sarasota, Fla., who bought into a $37 million Ponzi scheme.

The con behind the scheme, Beau Diamond, moved to the Sarasota area and easily integrated into the social circles of the wealthy. His father, the author of a few best-selling health books, was well known in the area. And the conman appeared to be doing well: He drove a luxury car, wore expensive jewelry and lived in a multi-million dollar waterfront home.

So when Diamond approached the area's well-to-do, many signed on to the bogus investments he was peddling without bothering to check if Diamond was licensed to sell investments or if the investment was registered. The investors relied on the reputation of the Diamond name, and didn't think twice about trusting him with their money.

John McKenney, a local tax attorney, was one of these people—and he lost $250,000 in the scheme. "The word was around [that] he was producing some seriously nice returns," said McKenney. "I felt lucky to get involved…this was my ticket to the big dance."

If McKenney had looked into Diamond’s background, he would have found that Diamond was not licensed to sell investments. And if he had looked up the investment, he would have found that it was not registered.

Anyone can fall prey to investment fraud. To avoid becoming a victim, take the following steps before handing over any money:

• Don't fall for the source credibility tactic. Just because someone has a good reputation in your community, it doesn’t mean that he or she is licensed to sell investments or that the investment is legitimate or registered.

• Ask and check before investing. Make sure you check out the seller and the investment yourself—no matter who the seller is and who else has bought into an investment.

For more resources on spotting investment fraud tactics, visit the FINRA Foundation's website www.SaveAndInvest.org/FraudCenter.

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