2021 hasn't even had a chance to break a sweat, and there's already a major Wall Street scam on the books. 

The US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have issued indictments against a New York private placement firm. GPB Capital was charged with wire fraud, securities fraud, and conspiracy in a Ponzi-style scheme that skimmed nearly $1.8 billion from investors.

The GPB incident is hardly the first time that fraudsters have been caught gaming the system. This latest Ponzi scheme does, however, beg the question of whether it is even possible for ordinary investors to avoid getting caught up in a system that seems to have a high level of manipulation.

Around 2,000 people found themselves caught up in the scandal involving GPB and various affiliates and associates of those companies. According to a recent class-action lawsuit filed on behalf of Florida and Texas plaintiffs, many victims were retirees.

According to the SEC, the principals of GPB lied to investors about the source of their 8% annualized payments, claiming that the money came from profits generated by GPB's portfolio companies. Upon examination, regulators discover that many of the distribution payments came out of investors' funds, a Ponzi scheme. According to the SEC, GBP may have manipulated financial statements to avoid scrutiny. The SEC further claims that both GBP mislead investors about the compensation and fees and prevented their employees from disclosing violations.

Yet, a punishingly low-interest rate environment pushes people, even over the age of 65 and already in retirement, to make risky financial moves to make gains. 

Economist and bestselling author Charles Hugh Smith observes why Wall Street insiders continue to execute scams boldly. Smith believes it's because scamming is easier and quicker than playing by the rules. Says Smith, "the truth has emerged from the shadows despite the silence of the insiders and financial media. … The stock market is nothing but one giant fraud."

In the past, many financial scandals were quickly dismissed and attributed to "bad actors." However, recent events have revealed the truth.  

How do you avoid being misled and being exposed to a scam vortex?

If you are someone within five to 10 years of retiring or already retired, then you need to have a realistic plan to help you avoid losing money in retirement. 

  1. Carefully choose a financial advisor. Always seek and verify the advisor’s credentials, paying special attention to their online reputation. Look beyond their website or glossy marketing materials to determine if this advisor's attitudes toward money align with yours.  Ask for references and call them; know who you are dealing with prior to agreeing to a relationship. 
  2. Ask questions.  How long has the advisor been in business?  What designations does the advisor hold? Does the advisor charge fees”  If so, what is their fee schedule?
  3. Be diligent with companies with whom you work. Once you've found a financial guide, be sure you know about ALL the companies with whom this person is affiliated. Just as is the case with your advisor, companies to whom you entrust your precious savings need to be well-established, with impeccable credentials.
  4. Ask the advisor for a written plan and then verify the categories. Do not place all of your important retirement money in one source, diversify. Be sure to create a solid "core." Having a guaranteed income stream when you retire will go a long way toward giving you peace of mind. Put a reasonable amount of your portfolio into safer money instruments, such as annuities, life insurance, bonds, bank products, and other less market exposed assets. When you've done this, you will feel more confident asking your advisor to recommend investments that give you more growth. 

Bottom line:

Market scams have been with us since the first stock was sold. Unfortunately, though, scams and their boldness and audacity have been on the rise since the global financial crisis of 2008. 

Partnering with an honest advisor who puts your interests first will help you achieve reasonable growth while avoiding losses to fraudsters. As you near retirement, exercise greater diligence in every facet of your financial life and remain skeptical of investments that seem too good to be true.

STEPHEN DYBWAD is a syndicated columnist. Visit https://stephenjdybwad.com.

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