This article shares some potential red flags for investment fraud, pyramid/Ponzi schemes & illegal trading.


From the infamous Charles Ponzi, the father of the Ponzi/pyramid scheme who died penniless exiled to Italy at the age of 66, to the recent Bernie Madoff investment fraud, many have sadly lost much wealth belonging to themselves & others due to one thing – GREED.

Ponzi’s scheme:
– 50% returns per annum for investing 6-months
– 100% returns per annum for investing 12-months


Potential Red Flag: Very high and/or guaranteed returns

  • The old adage is that that if it sounds too good to be true, it probably isn’t!
  • Investments with very high returns above 20% per annum should be looked at very carefully.
  • Guaranteed returns are a potential red flag as well unless it is from a government, major corporation or endowment/annuity with a contract. And even then, it is only as good as the credit worthiness of the entity making the guarantee.
  • If the investment is too complex to explain or too secretive to share, you should be wary.
  • In the US, you need to be an accredited investors (e.g. high-net-worth individuals, banks, & other large corporations) before you are allowed to access complex & higher-risk investments.
An often used lie is that pyramid schemes recruitment are just like in companies where there is a CEO, GMs, VPs, Managers, etc. The janitor does NOT give every part of every dollar he earns to the CEO!

An often told lie is that pyramid schemes recruitment are just like in companies where there is a CEO, GMs, VPs, Managers, staff, etc. The janitor does NOT give every part of every dollar he earns to the CEO!

Potential Red Flag: Recruitment Incentives

  • While it is true that most companies have a hierarchical structure (derived from the military), it may be a concern when there is an overt focus on recruitment incentives.
  • Any for-profit business needs viable products/services to sell but if the focus is on recruiting instead of selling products/services, it may be a cause of concern.
  • Best case scenario: MLM-like structure
  • Worse case scenario: Ponzi scheme
  • Question to ask: how much commission/bonus/incentives do uplines receive? Does the math make sense or are the bottom suckers liners paying the uplines who got in early into the game?


Potential Red Flag: Awards / Celebrity Endorsements / PR Focus

  • It is a potential red flag with website announcements largely focused on dinners, expos, talks, awards & pictures of fancy vehicles & VIP treatment.
  • PR can sometimes be (mis)used to try to create credibility & mask non-existent financial returns.
  • As an example, the Bernie Madoff fraud which defrauded thousands of investors of billions of dollars over decades but paid ~10% returns regularly, gave philanthropically to many causes, & whose victims include Kevin Bacon, Uma Thurman, Steven Spielberg, Larry King & Nobel Peace Prize recipient and Holocaust survivor Elie Wiesel.


Before investing one’s hard earned money, one should invest in educating yourself on the investment & perform due diligence. The worse reason to invest is because of greed & the worse timing to invest is when unprepared. I would not recommend speculative or high-risk investments (or to limit to a very small percentage of one’s portfolio). Investing online as well requires additional caution as if anything goes wrong, it will be very difficult to recover your investment.

Personally I will stay far away from investments that have multiple potential red flags. Especially if it includes warning guidelines from BNM, promises very high/guaranteed returns or overly focuses on recruitment incentives.

In any investment, it is up to the individual potential investor to determine if any investment is worth investing in. One would especially want to without bias examine your own self in regards to:-

  1. Understanding of investment: The greatest risk is often when one has little knowledge of an investment & over-estimates his knowledge. Do ensure you know what you are investing in & how your money is being invested, and in detail.
  2. Safety of returns: Even secure or contractually guaranteed returns are only as good as the company or government who guarantees them (and remains in existence). If returns are guaranteed/contractual, insist on the black-and-white contract specifically under your name.
  3. Returns on investment: This comes last after ensuring everything else. There are many investments & many opportunities out there. Paraphrasing buffet, investing should be 1) in your circle of competence; and 2) investing wisely with your 10 bullets you have limited supply of in your lifetime.

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Disclaimer: the information in this article is provided as general information on potential red flags & is not in any way referring, whether directly or indirectly, to any particular company(ies) or individual(s). Read full disclaimer.