A friend approached me with an investment opportunity and I would like to know if it sounds legitimate. It involves investing in a company that engages in proprietary trading of international currency, by being a lender to the company. The company guarantees 12 percent or 25 percent of the spread, whichever is greater. As a lender, you are given a 90-day perpetual note that automatically renews. If you choose, you can call in the note at any time, at which time it reverts to a 90-day note. At the end of 90 days you can get all of your money back. If you want to, you can take out any interest you've earned each month. You can view how much interest has been deposited into your account on a daily and monthly basis. You can also participate by rolling over existing IRA accounts to a self-directed IRA company. The trading company is regarded as an institutional account and is approved by the IRA company. If you choose, you can have the monthly interest you earn sent back to your account at the IRA company to make other investments. Does this sound like a legitimate investment opportunity?
This "investment opportunity" has all the characteristics of a classic Ponzi scheme:
A "proprietary trading strategy of international currency" (mysterious! must be real!)
A "guarantee" of at least 12%
90 day liquidity
A "view" of interest accumulating into your account
Best of all, you can roll your IRA into this investment and consolidate the funds into a trading company
1. There is no such thing as a guaranteed investment in anything.
2. A projection of 12% returns is extremely high - Bernie Madoff promised returns of 10-12%, but 6-8% returns in stock investments would be high. What is this magical strategy?
3. What is that "view?" Anyone can fake accounts on a website.
4. If you consolidate your funds into a trading company, you give up custody of your assets. How do you get them back?
5. Most importantly, if this is such a great strategy, why are the promoters trying to attract $10,000 IRA accounts? Why wouldn't they pitch to high net worth families and institutions for $10 million accounts if the strategy was any good?
Bottom line: if the "investment" sounds too good to be true, it is!