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How does one recover from investing in a Ponzi scheme? I am feeling very stupid and embarrassed. The SEC will take two to three years to figure out and recover any funds remaining. I have additional funds to reinvest, but it is money I want to leave my daughter. What advice do you have for me?
-A.
Dear A.,
Plenty of smart people have fallen for Ponzi schemes, so I hope you’ll eventually be able to move past the shame you’re feeling. If anything, take comfort in the fact that you didn’t put all your eggs in that proverbial too -good-to-be-true basket.
For readers who may be unfamiliar with the term, a Ponzi scheme is a type of investment fraud where investors get paid from the money new investors pay in, rather than from the gains the fraudster claims the investments are earning. The scheme collapses when too many people try to cash out at once. That’s what happened when Bernie Madoff’s investors attempted to withdraw $7 billion within a short window in 2008, during the financial crisis.
As you point out, the process of recovering money can take years. Unfortunately, there’s no guarantee that you’ll recover anything. If you do recoup some of your money, expect it to be significantly less than what you initially invested. So I think this is a situation where you hope for the best but assume the worst, which is that you won’t get any of your money back.
You’ve obviously reported your losses to authorities, as anyone in this situation should do. The best thing you can do is look back at what lured you into this fraud. Are there any red flags you can identify now in retrospect?
For example, Ponzi schemes often promise huge returns with little to no risk. Or they claim they can keep churning a profit year after year, regardless of what’s happening in the market. But the truth is, it’s impossible to earn outsize returns quickly without taking substantial risks. And anyone who tells you about an…
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