Beware of the swindler

It can take almost 30 years to amass a sum of $200,000 for your retirement. Now you want to invest it and make even more money. To do so, you start looking for a professional third party with a stellar track record to give your money to.

It’s not a bad idea... but God forbid you pick the wrong firm or money manager for this task! If you aren’t careful, what took so long to build could disappear in an instant. And when the last investor has been duped and the FBI comes knocking at the door to investigate, that means the Ponzi scheme is up. At this point the perpetrator usually makes a run for it because he knows his world is about to come crashing down around him. But for you the poor victim whose savings account has been pummeled the nightmare has just begun.

Meet Bruce Friedman, superstar scam artist

Anyone who lost money by “investing” with Bruce Friedman, a Sherman Oaks, California financial advisor who recently fled the country after it was discovered he was cheating investors, understands exactly what it feels like to be duped. Mr. Friedman is under investigation by the FBI and SEC for allegedly defrauding investors of $228 million dollars in a sophisticated Ponzi scheme that targeted senior citizens nationwide.

Friedman hatched his scheme using two companies, Diversified Lending Group and Applied Equities, Inc. Like many of his victims Friedman himself is in his 60’s. He promised retirees who trusted him with their savings that he was investing in beachfront rental properties but instead diverted millions of dollars to himself, family and friends; buying a luxury home, cars, expensive trinkets and designer clothing for his girlfriend.

Thankfully Mr. Friedman was apprehended in Cannes. He now sits in a French prison awaiting what promises to be a lengthy extradition process. While he lived high-on-the-hog his poor victims, already in their golden years, were left behind to sort out the destruction and to prepare for a life of diminished expectations.

Targeting not only the gullible, but also the sophisticated

Don't think you're too smart to be ripped off. Retirement investment scams targeting senior citizens are on the rise. This is why savvy investors in the middle and upper tax brackets need to understand they too can become vulnerable prey for people like Bruce Friedman and Bernie Madoff. It’s not enough to simply hope for the best or believe you’re too smart to be scammed.

You must realize that no matter how good it sounds, it is impossible even for a superstar like Warren Buffet to guarantee an annual return of 20% a year. If you ever hear someone claiming with a straight face they can consistently achieve such a feat, just turn around and walk away. Unless they have a crystal ball that sees into the future, there’s no way someone can possibly give that to you.

However that is exactly something a skilled con-artist will say in order to seduce you into investing with him. Scammers will attempt to lure victims by offering investments in something refined or exotic like Turkish Eurobonds for example, that claim a stable return of 18 percent annually.

Being low-key: the future of scamming 

Double-digit returns? This has become way too "Hollywood" since Madoff's well-publicized demise. The new breed of scammers have taken a page out of Bernie Madoff’s play book by promising returns of 6 to 8 percent instead of 15 to 20. Offering a return of 6 to 8 percent doesn’t sound as far fetched, and may even sound more appealing to conservative middle class investors aiming for safety in their investments.

But again anyone who guarantees that you will make a certain amount of money investing with them should be viewed with suspicion because in the stock market nothing can be guaranteed. Volatility had never been higher and recent history illustrates it quite well.

Victim of a Ponzi scheme? Uncle Sam can help...

Being caught up in a pyramid or Ponzi scheme can be embarrassing. And it can hurt not only financially but physically and emotionally too. Where do you turn when the smoke clears and you realize your savings have disappeared? You can ask the government for help.

Since the Madoff debacle in 2009, the IRS has been providing tax relief for Ponzi scheme victims, allowing people to deduct up to 95% of their losses immediately. Whether you’re an investor who takes a huge risk hoping for outsized returns, or someone who prefers a modest risk for modest returns, the IRS says you can claim a capital loss if the company or fund you invested in turns out to be fraudulent. You can even take a loss against your entire income.

Still, nothing beats not becoming a victim in the first place. Don't get involved with anything you're unsure of. Listen to your guts: if it sounds too good to be true, then it CERTAINLY is.