After Bernie Madoff was sentenced to 150 years in prison for scamming people out of billions while operating what has been described as the large Ponzi scheme in history, you would think people would be a bit smarter about dealing with potential scammers. Apparently, not. In fact, Tom Ajamie, a lawyer and co-author of Financial Serial Killers: Inside the World of Wall Street Money Hustlers, Swindlers, and Con Men, says he believes scamming is occurring even more frequently.
“There continue to be Ponzi schemes and financial scams, and there always will be,” Ajamie says. According to The New York Times, about $9 billion was lost in financial scams last year, and Ajamie cites weak regulation as one reason people are still getting cheated.
For the last few years, he says, the financial industry has been fighting against Congress and the Obama administration to minimize financial regulation in the wake of the economic downturn and the Madoff affair. “They’re very powerful, and they have a lot of money to fight these regulations,” Ajamie says. “So you really have to take this on yourself.”
To do so, Ajamie gave TIME Moneyland five tips that will help anyone avoid even the smartest of scams.
1. Do a background search on your broker or financial planner.
It seems simple, but the first move you should make before handing your money over to someone is to do a simple background check. To start, just run a Google search. Ajamie’s office has had numerous clients who come with complaints of fraud only to find out that a quick Internet search of their money manager would have uncovered previous run-ins with the law. There’s no system in place to keep people who have been imprisoned for fraud from re-entering the market, so you’ve got to do your own background search. “It’s interesting to me how many people will just take an assertion at face value and not really dig into the background of the person they’re going to give their money to.”
2. Make sure your money is in a segregated account.
Scammers will often ask people to write a check directly to them. Instead, you should have a segregated account with your name on it so you can receive monthly statements regarding your money and you can check your account online. “To me, the biggest red flag for Madoff was that there weren’t separate accounts,” Ajamie says. “You don’t want your money pooled in an account with other people’s money.” If it is, you’re never going to know where it’s at and where it’s going.
3. Confirm there’s an independent, credible auditor of the account.
Madoff had an accounting firm. It turned out that they were his buddies. “We see that time and time again,” Ajamie says. “They may say, ‘We audit. We’ve got someone down the hall, and he makes sure everything’s ok.’” What you need is an independent, outside auditing firm. Then, do a little digging yourself on that firm to make sure they’re credible. After all, independent auditors are not always required by law.
4. Have someone you trust verify your manager or broker.
Before you pull the trigger on a new investment, try to find someone you trust who has some knowledge of the financial industry or advisers in your area. If you have an accountant or a lawyer you rely on, have them check things out. Some people will say you could just ask your money manager for references, but they’re often in on the scam, too. “Do you know anyone who gives out bad references?” says Ajamie.
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5. Check if they’re registered with FINRA.
Finally, if your new money manager is a stock broker, you can see whether he or she is registered with the Financial Industry Regulatory Authority. On finra.org, you can click on FINRA BrokerCheck to see if they are licensed and whether they’ve been involved in anything disreputable. “If he or she has been disciplined for mishandling money or doing anything else improper, there’s a record of it there,” says Ajamie.
The most important thing to remember is that you’ve got to take the initiative to protect yourself. Ajamie says he’s been dealing with financial scams for 25 years and has seen hundreds of people come to him who have lost just about everything. “I’ve seen all the consequences of being scammed for money,” he says. “If you worked your whole life and have what you think is a nest egg, and it’s taken from you, it can really destroy the rest of your life.”