By now most investors have heard the cautionary tales provided by the unfortunate investors in the Bernie Madoff investment scam. This gigantic Ponzi scheme snared not the novice investor but the supposedly sophisticated movers and shakers, including some of the wealthiest individuals in the country. How did Mr. Madoff manage to keep this sham going for so long? Why did these supposedly experienced investors fall for the lie? Why did no one notice the extremely high rates of return Madoff’s funds were supposedly generating? The answers to those questions are still being determined, but in the meantime the Madoff scandal can provide ordinary investors with some important lessons.

While investment scams of the size Bernie Madoff was able to engineer are rare, smaller investment scams and Ponzi schemes are all too common. These small scale scams often fly well under the radar – that is until their unwitting victims find themselves holding the bag. By then the perpetrator of the scam is often long gone, leaving hundreds or even thousands of victims in his or her wake. Recovering those lost funds can be difficult, and even when a recovery is made investors are often left with pennies on the dollar. The better course is to avoid these investment scams in the first place.