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(originally published January 2009)
As our nation comes to understand the stunning news of the alleged $50 billion Ponzi scheme perpetrated by New York hedge fund operator Bernard Madoff, we now have our own high-profile case here in Indiana that has garnered national news attention. Indiana investment adviser Marcus Schrenker was apprehended by U.S. Marshals on January 13th, two days after the pilot allegedly abandoned his plane, which later crashed near some homes in Florida. Schrenker and his businesses are under investigation by my office’s Securities Division, an investigation that began in late December and has led to multiple charges of securities fraud.
Schrenker operated two investment adviser firms as well as an insurance agency. Reports suggest that he may have been committing affinity fraud, where fraudsters exploit an existing level of trust and friendship to get people to invest.
Affinity fraud frequently takes place in religious and/or ethnic communities as well as within professional organizations. While Madoff took advantage of members of the Jewish community, news accounts indicate that Schrenker relied on his bond with other commercial pilots to gain their trust.
The following are several tips for protecting yourself against Ponzi schemes and affinity fraud:
- Never rely solely on reputation or the testimony of others. Word of mouth plays a big role in these scams, but remember, just because someone else made money doesn’t mean you will or that the investment is legitimate. Even an investment tip from your best friend should be researched and explored with a trusted, licensed financial adviser.
- Be skeptical of promises of high returns. One possible red flag in the Madoff case was that his hedge fund generated consistently high returns, even when the market fluctuated. Promises of high returns are typically too good to be true.
- Investigate before you invest. Use the searchable databases on http://www.indianainvestmentwatch.com/ or call 1-800-223-8791 to make sure an investment adviser firm is registered with either the Indiana Securities Division or the Securities and Exchange Commission. You can also contact the Securities Division to make sure an investment is registered.
- Be skeptical of any investment opportunity that is not in writing. Every investment opportunity should have a prospectus that outlines the details of the investment. Once you enter an investment, be sure to closely examine your financial statements for suspicious activity such as unauthorized or excessive trading.
If you feel you have been the victim of a Ponzi scheme or affinity fraud, report it to the Indiana Securities Division by calling 1-800-223-8791 or file a complaint online at http://www.indianainvestmentwatch.com/. While it may be difficult to turn a once-trusted group member over to law enforcement officials, it is one of the most effective ways to combat fraud. In most cases, the fraudster has likely taken advantage of people beyond just one group or community. Reporting the person will help protect future potential investors.
- File a complaint with the Securities Division
- Contact the Securities Division