A South Florida woman was sentenced to 20 years for leading a $190.7M Ponzi scheme — victims were ‘blindsided’ and ‘devastated.’ Here’s how it worked and how to spot similar scams

Dishonesty taken to the max

Investment firms often try to lure people in with the promise of strong returns and innovative strategies. Garcia, however, appears to have taken that concept to an illegal extreme.

Garcia ran a firm called MJ Capital Funding, LLC and recently pleaded guilty to conspiracy to commit mail and wire fraud. Through her firm, Garcia raised funds to supposedly provide short-term financing to small businesses. She even hired recruiters to go out and find additional victims.

With a Ponzi scheme, the fraudulent investor or investment firm pays existing investors with funds collected from new investors instead of actual returns generated by investments. Generally, whatever money people hand over in a Ponzi scheme never gets invested at all.

And that’s exactly what happened with MJ Capital: the company didn’t spend any of the money collected on small business loans as promised. Instead, Garcia and others pocketed much of their investors’ money. Of the almost $200 million raised, investors lost almost $90 million.

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How to spot a Ponzi scheme

The challenge with Ponzi schemes is that they’re not always so obvious. If they were, they’d be more easily avoidable. And it’s not just the wealthy who are targeted for Ponzi schemes — a modest net worth is so protection from scams.

First, be careful with any investment where you’re promised a specific return. Most honest fund managers or investment professionals will tell you that past returns are not a guarantee of future performance.

And be especially cautious if you’re promised a return that’s “risk-free.” There’s technically no such thing as a risk-free investment, and it’s unlikely to see very high returns out of investments that truly carry little to no risk.

Also, most investments fluctuate in value over time. Be wary if an investment professional promises the same consistent return year after year.

Another thing to look out for is unregulated investments, or investments that aren’t registered with the SEC. And also, any professional you invest with should be licensed, or have a firm that’s licensed and registered. If you don’t see proof of that, run the other way.

Finally, as a general rule, it’s a bad idea to invest in assets you don’t understand. If you’re presented with an opportunity to invest but you can’t wrap your brain around the mechanics of how money is being made, don’t do it. Instead, stick with investments you know.

Owning stocks, for example, can be risky because stock values can rise and fall for a variety of reasons. But there are basically two ways to make money from stocks — when the price of your shares gains value, or when you receive dividend payments. If you can’t understand how a given investment is making you money, it may be because that won’t actually end up happening, despite what you’re being promised.