Too Good to be True is Too Good to be True

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.