A Myrtle Beach attorney has been charged with running a Ponzi Scheme that defrauded investors out of about $3.5 million.
The Securities and Exchange Commission claims M. Mark McAdams and his partner, Dane Freeman, promised returns of up to 4900% in two months by trading bonds in a German company.
At the time, McAdams was a partner in the McNair Law Firm and the S.E.C. says he used the firm's e-mail and letterhead to attract clients.
Ponzi Schemes have been in the news a lot lately, but many people still don't know much about them. You've heard the old phrase, robbing Peter to pay Paul. That's really all a Ponzi Scheme is.
In the early 1900's, an Italian immigrant named Charles Ponzi convinced hundreds of people that he could make big returns for them by investing in postal reply coupons. And for a little while, he did. All he was doing, of course, was taking money from the old investors to pay off the new ones. "The only way you can make it work is, you have to continually get more people into the pool," said investment advisor Shaun Walsh.
Ponzi went to prison after losing millions of dollars of his investors' money. Walsh says Ponzi plans are a form of the old pyramid scheme and they are always doomed to fail. "I think around about the 13th layer or so, it's like you need more than the population of the United States to sustain it."
If they can't possibly work, why do otherwise smart people like Bernie Madoff keep trying them? The answer? Greed. Not just on the perpetrator's part, but the investors, too. "The bank is only paying me two percent a year on a CD," explained Walsh, "But if I can get ten percent a month on this money and these friends or these other folks that are already involved have been getting their money back, well, it must be legit, right?"
Wrong.
So-called experts who promise unrealistic, outrageous returns are the biggest red flag that what they're peddling is a Ponzi Scheme. "I would just smile, shake their hand and say, well, good luck, come and see me in another six months or so," Walsh said.
So, do your homework. Ask some questions, like how long has this person been in business? Are they registered with the Securities and Exchange Commission? If an investment deal sounds too good to be true, it probably is.
Here's a link to check someone's status with the Financial Industry Regulatory Authority - http://www.finra.org/
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