The Amish, a peaceful, insular community that that eschews the use of modern technology, rarely make headline news. Unfortunately, today the Amish are getting considerable media attention for all the wrong reasons. The Washington Post reported that the Securities and Exchange Commission (SEC) is investigating a Madoff-like scheme in which a 77-year-old Amish man named Monroe Beachy filched more than $33 million dollars from more than 2,600 investors, the vast majority of which were fellow members of his Amish community. Beachy has been running his scheme over a 25-year period and was charged with fraud by the SEC yesterday.
Particularly heartbreaking is the fact that Beachy established such trust among Amish parents that many encouraged their children to invest with him as well—investors included a school cookbook fund and a school capital fund. Armed with just a 10th-grade education and some classes from H&R Block, Beachy lured investors by claiming they were earning money from safe U.S. government securities and would receive higher returns than they would get from banks.
Speaking of Ponzi schemes, Bernie Madoff himself made news this week when he accused banks of being “complicit” in his investment scam in a recent prison interview with the New York Times. Madoff stated that banks must have known about his Ponzi scheme, which lasted 16 years and cost investors billions of dollars, and that banks are to blame for failing to examine discrepancies between his filings and other information they had at their disposal.
While each Ponzi scheme is different, they all involve a perpetrator who promises to invest client money while instead using the cash for something else, usually for personal gain. The scammer creates fictitious profit reports, and—when an investor asks for their earnings or principal—the fraudster uses other investors’ money to pay them. Ponzi schemes normally go on until someone discovers the truth or there’s no longer enough money left to pay investors and the scheme falls apart.
With consumers from residents of small Amish communities to New York power players falling victim to investment scams, now is a great time to go over some safety tips:
- Be wary of big earnings claims. No one can guarantee how much you’ll make
- Scammers advertise pyramid schemes as businesses that provide ‘easy money’ or ‘guaranteed income.’ Phrases like these should be red flags
- Stocks and bonds fluctuate over time. Relentlessly even, positive returns over long periods of time is often a warning bell
- Protect yourself by diversifying your brokers and not putting all your money in one person’s hands
- Remember the old adage: if it sounds too good to be true, it probably is
For more information on Ponzi schemes click here.