Huge returns, secret formulas are hallmarks of Ponzi schemes

RIP-OFF ALERT: The latest Ponzi scheme to come tumbling down shows that all investment scams have common themes at their core.

The Sacramento Bee reports an investment advisor named Thomas Hammond is going to prison for 4 years and 9 months after stealing more than half a million dollars from employee pension plans.

Hammond was doing legitimate investment advising to people. But then he started telling clients he had a private portfolio that offered much larger returns.

That’s Rule #1: Beware anytime anyone promises you outsize returns when you’re lucky banks are paying you 1% (if you’re lucky) on your money.

So Hammond got clients to move from legit investments into the phony ones. He took their money and instead of investing it, he put it in a bank account and spent it for personal use.

The tip off came when one of his clients asked for their money back. Hammond told them they had to wait and then he didn’t give all of it back when he did give them money.

Rule #2: Be wary of any promising they have a secret formula. When somebody claims they’ve got the magic, the only magic they have is the kind that will make your money disappear.