Yet again, we hear a report of the Financial Services Authority and the police investigating a firm that was promising investors returns of between 6 and 13 per cent per month. It is said that £80 million may be involved.
Assets including Ferraris, Bentleys and jewellery have been impounded by the police and three men have been detained. The authorities suspect the scheme was a ‘Ponzi’ scheme similar to that run by disgraced financial adviser Bernard Madoff, recently sentenced to 150 years in prison in the USA for his fraud. A Ponzi scheme works by paying the supposed ‘profits’ to investors out of the cash coming in from new investors. When new money ceases to be invested in a sufficient quantity to pay the fictitious investment returns on the money previously invested, the scheme collapses.
The reality is that returns far above prevailing market rates are seldom achievable.
Too Good to be True is Too Good to be True
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