Josh Brown has a really important post up about avoiding ponzi schemes and financial frauds. I think his final point is super important:
“3. Once again, investors got stung by wiring money into a bank account without having a third party custodian involved. Avoiding this is the simplest and most effective way of protecting yourself against fraud. Madoff was self-clearing as was that other asshole Allen Stanford. The biggest and brightest red flag a potential scammer can wave in front of you is the fact they need custody of your money, not just control over the trading decisions. There is a huge difference.”
This is so important. You should always use a third party custodian or a highly reputable custodian. You have to know precisely where your funds go. They shouldn’t go into “Joe Scmoes” bank account or the “I am Scamming You, LLC” corporate account. You should be writing checks to “Charles Schwab for benefit of I am Not Scamming You, LLC account #” or whatever. This is so simple. I implore you – if you want to avoid frauds and scammers please use this simple bit of advice.
And be careful out there. With the change in hedge fund laws retail investors are about to be bombarded by guys trying to get you to write checks to their corporate account. And if you need advice email me. I’ll audit the fund for you for free or give you my opinion on whether you should be giving them money in the first place….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.