Hellish hat trick: This ultrarich New York family was ripped off by Enron, Bernie Madoff, and then FTX — use these 3 simple tricks to protect your own wealth
Like a man struck by lightning three times, billionaire oil baron Robert Belfer has the dubious distinction of falling prey to Enron’s corruption, Bernie Madoff’s Ponzi scheme and the implosion of cryptocurrency exchange FTX.
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To say this 87 year old is a financial fraud survivor is putting it mildly. Madoff took him for tens of millions. Kenneth Lay’s energy company drained him of billions. Now, as first reported in the Financial Times, Belfer stands to lose a total stake of $34.5 million in Sam Bankman-Fried’s crypto company.
Cold comfort, perhaps, but in every case Belfer was far from alone in losing a fortune. With FTX, other wealthy Americans like New England’s Patriots owner Robert Kraft and Tampa Bay Buccaneers quarterback Tom Brady have been sacked, if you will.
So arises the question: If wealthy investors backed by a team of advisers can fall victim to fraud, how can everyday people ever hope to avoid the same fate? Here are three ways to make sure you never get taken.
1. Make sure to check the registration
While some frauds may be impossible to detect, others give telltale signs. First ask yourself before making any investment: Is it registered? Most investment products must be registered with a state financial institution, making it easy to research whether they’re legitimate.
You’ll also want to check whether a person or company has a license to sell investments, which is required in most states. Knowing that an entity is approved to make investment recommendations goes a long way towards inspiring confidence.
Need extra help verifying a company or person? Contact the Securities and Exchange Commission’s Office of Investor Education and Advocacy. And in the event you run into a fraud, you can file a complaint by contacting the Financial Industry Regulatory Authority (FINRA).
2. Say no to FOMO – and know what you don’t know
Even the smartest investors give in to the “fear of missing out” (FOMO). FTX reeled in countless people who had no idea how cryptocurrencies work.
So if you’re worried that an investment isn’t in your wheelhouse, that’s actually a good thing. It means stay away. Otherwise, if you don’t know its general workings, you’ll also have no idea what hit you in the event of a fraud.
Scammers hope that you’ll abandon all logic and due diligence in the rush to get rich. “Act fast! Who knows how long this will last?” Remember that time is in fact your greatest ally in investing, while haste is the enemy.
Without doing some basic research, how can any investor know a company’s background, the track record of its players, or what it even does? Give your FOMO a chill pill; keep your impulses in check. The classic Benjamin Graham investment book, the one billionaire Warren Buffett treats as a bible, is called “The Intelligent Investor” — and not the ignorant or impatient one.
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3. Right now, get it in writing
With any and every legitimate investment opportunity, you should be able to take your time, read through the documentation and learn everything you need to know about the product.
The documents should be easy to understand if a company hopes to bring on investors. If you’re confused, or come across fantastical claims without proof to back them up, take pause. Scammers play on emotions, not deliberative thinking. And remember: No legitimate equity investment will guarantee you a return.
Unfortunately, the online world gives fraudsters ample opportunity to avoid documentation and whip up hype. Social media not only gives a crook a megaphone, but also an easy escape route once you invest, if that’s the only place you can find them.
Getting it in writing means you’ll know exactly how to contact the investment company, point person or broker — and learn who they are in the broader financial sphere. Why would a scammer want you to verify their identity, let alone find them once you sense something’s off?
Bottom line: It truly pays to ask
The most sophisticated scams are hard to spot, and the scammers themselves often fool some influential people. Enron’s Kenneth Lay counted President George W. Bush as a close friend. Madoff’s roll call of famous investors included Kevin Bacon and Kyra Sedgwick. And when the dust from FTX settles, expect to see many prominent names joining Belfer, Brady and Kraft.
So ask questions. Be skeptical, especially if huge returns are promised and urgency runs high. Brokers who make their living by helping investors find solid opportunities will be happy to help you get all the information you need and ask to see. Theirs is by law, and by conscience, a fiduciary responsibility to put you and your money first.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.