By: Jack WaymirecloseAuthor: Jack Waymire Name: Jack Waymire
Email: jack@paladinregistry.com
Site: http://paladinregistry.com
About: Jack writes for the InvestorWatchdog website and Worth magazine. He worked in the financial services industry from 1976 to 2004. For twenty of those years he was the president of a Registered Investment Advisory firm and a Broker/Dealer. Jack is the author of Who's Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor and is a co-founder of PaladinRegistry.com.See Authors Posts (87) | June 27, 2009 | Illegal Schemes & Scams

Why did 11,000 affluent investors fall victim to Bernie Madoff’s Ponzi scheme?  There are four primary reasons.

The affluent accumulated assets building companies, managing businesses and providing professional services.  They did not make their fortunes investing their assets in the securities markets.  They hire financial professionals to help them, but they don’t know how to screen and select competent, ethical advisors.  

Many of the biggest scams target the affluent.  Bernie Madoff belonged to an ultra-expensive country club, owned multiple homes, worked out of expensive offices, and kept a big boat at the yacht club.  He also traveled in the right circles to meet investors who were lulled to sleep because he appeared to be as successful as they were.

The affluent tend to rely on advisor referrals from people they know and trust.  There are two problems when they use this strategy.  The bad guys know they depend on referral sources.  Madoff developed a sophisticated network of money finders.  Also, what if the referral sources don’t know good advisors from bad ones, or have conflicts of interest?

Madoff also told affluent investors what they wanted to hear.  They wanted high returns so he promised them high returns.  They wanted consistent returns so his track record showed no down years.  He could make these promises because he never intended to invest their assets.  He intended to use the assets to perpetuate his own affluence.

Madoff’s sophisticated marketing tactics conned $65 billion from affluent investors who should have known better. But they were lulled to sleep by the marketing tactics of a likeable criminal who wanted to live like them.