• Ponzi schemes are still happening around us, like the one in Italy recently
• As wise investors, we need to recognize the red flags to protect our capital
• What steps can we take to avoid falling for such scams?

Just days ago, Italy was shaken by a shocking incident that left over 50 individuals in financial ruin, resulting in a collective loss of 10 million euros. This intricate scheme was orchestrated by an individual masquerading as a financial advisor.

Beneath the surface of this malevolent plot lies a well-known pattern: It's another Ponzi scheme, albeit with a unique twist. What sets it apart this time is the perpetrator's limited grasp of financial markets, introducing a captivating element to the deception.

What Happened?

A former financial advisor, who had been removed from the OCF Register, essentially started an illegal mediation and advisory business.

He made enticing promises to clients, pledging annual returns of 15% to 18% – paid monthly. This meant that individuals would invest today and receive the capital gain in just one month.

In theory, these gains would then be deposited into the clients' accounts. These clients, incredibly, opened dedicated bank accounts at a bank trusted by the scammer, naively handing over their Internet banking credentials to access these accounts. The primary focus of this illicit activity was investing in the American market.

Unfortunately for the former advisor, things started to go south right away. To convince clients that all was proceeding as planned, he resorted to the classic Ponzi scheme tactic: taking money from one client (as he had access to their credentials and could manipulate online activities) and transferring it to another client's account. This duped the latter into believing they were receiving the promised returns from financial management gains.

As losses mounted, the need for additional capital grew, and with it, the need to ensnare new victims. Eventually, this scheme unraveled in classic Ponzi fashion. The house of cards collapsed, leaving investors with significant losses, while the fraudulent advisor was out spending on luxury items like watches and cars to maintain the illusion and attract new prey.

What Can We Learn From This?

In light of this unfortunate incident (with hopes for the victims' recovery), here are some fundamental takeaways to protect yourself from such scams:

• Always verify the credentials of individuals making investment offers. Check if they are Registered for financial advice.
• Remember that nobody can guarantee returns in the world of investments, which are inherently uncertain. Furthermore, consider that the stock market typically averages annual returns of 6% to 9% over long horizons (15 years or more). Fewer than 5% of investors worldwide consistently outperform the market. If someone promises you an annual return of 15% to 18%, ask them for:

1. Historical returns, backed by certified accounts and operations from the past 5 years.
2. An explanation of the Rule of 72: If they claim to achieve 15% to 18% annual returns, they should demonstrate that their capital doubled in the last 4-5 years (72 divided by the return).

• Never share your bank account credentials with anyone. Even authorized financial advisors should not require this information, let alone an illegal advisor.
• Recognize that generating consistent financial returns in the long term is challenging, and it's even more so in the short term, where uncertainty prevails.
• Understand that providing financial advice is a distinct profession. As long as individuals' financial ignorance and greed persist, these unfortunate incidents may continue to occur.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. As a reminder, any type of assets is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor. The author does not own the stocks mentioned in the analysis.