CPAs should remain on high alert post-Madoff: stay vigilant.

• Author: Borkowski, Wayne R.

We've all heard the saving; "If it sounds too good to be true, it probably is." Some people, however, forgot. In a 2008 Ponzi scheme, for example, three men were accused of promising individuals that if they invested $1,500 with them, they would receive a return of $50,000 in 18 months. Sounds too good to be true, right? Who would believe such a return was possible? Well. 7,000 individuals did and invested $80 million with the fraudsters.

In December 2008, Bernie Madoff, owner of Bernard L. Madoff Investment Securities, LLC, told his sons, Andrew and Mark, that, he had been conducting a massive Ponzi scheme for years. On that same day Dec. 10, his sons informed authorities of their father's alleged criminal activity. The Madoff fraud represents the largest loss in history from a Ponzi scheme. Irving Picard, the court-appointed trustee, estimates that, the losses to investors, including fabricated gains, was almost. $65 billion. To date, no family member has been charged with a crime, although invesligations into the fraud continue. However, six individuals associated with Madoff's firm have been charged with criminal activities and more indictments arc expected.

Subsequent to Madoff's arrest, in February 2009, Robert Stanford, the head of the Stanford Financial Group, was accused of conducting a $7 billion Ponzi scheme. The 49-year-old Stanford was arrested and is in prison awaiting his trial.

These are just two high-profile examples of the many Ponzi schemes that have occurred in recent years. (See Ponzi Tsunami sidebar.) In 2009, almost, four times as many Ponzi schemes were uncovered than in 2008, thanks in part to the SEC's stepped-up enforcement and investigation.

So, what can you do to avoid being victimized by a Ponzi scheme? The SEC offers the following red flags of potential schemes:

High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any "guaranteed" investment opportunity.

Overly consistent returns. Investments tend to go up and down over time, especially those seeking high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.

Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important, because it provides investors...