Jacquelyn Mitchard, a smart accomplished author, loses everything to Ponzi scheme. How can this happen?

Jacquelyn Mitchard, the Wisconsin author best known for her novel The Deep End of the Ocean (Oprah's first book club pick), is the victim of a Ponzi scheme.

In Parade Mitchard writes:

Four years earlier, we’d invested with two Minneapolis 'investment specialists' who did currency arbitrage and other, less risky investments. (My husband) had discovered them on a local radio show. I had my doubts—one of them wore a toupee you could see from Saturn. But I couldn't argue with what their portfolio seemed to say. Now, suddenly, our money had vanished.

The question everyone is asking is, “How can this happen? Jacquelyn Mitchard is a smart accomplished author. How could she be duped into losing everything?

Mitchard was not alone:
The international Ponzi scheme masterminded by Trevor Cook, a Minneapolis trader bilked over 1,000 investors out of millions of dollars. His business partner Pat Kiley was a nationally syndicated radio host, whose show was carried on more than 200 radio stations nationwide, including the Worldwide Christian Radio network. He told his listeners he was a Christian. The pair duped victims into making allegedly safe, high-yield foreign currency investments that turned out to be neither. Instead the money was used instead to pay off gambling debts, underwrite a lavish lifestyle, and purchase a mansion.

Why would so many people turn over their life savings to these scam artists? What can investors do to protect themselves from these schemes?”

Kiley’s radio show and claim of being a Christian gave investors a feeling of confidence and legitimacy. I chose my own financial planner from a radio program that airs here in Milwaukee.

We must perform our due diligence. Steer clear of tips from your neighbor, going in with someone you know and guaranteed rates of return.

Clark Howard, whose show I listen to regularly, recommends hiring a fee only financial planner:

In general, people don’t know what to buy and how to invest. They end up hiring commissioned salespeople, who sometimes don’t do what’s best for you. Some stockbrokers are not ‘fiduciaries,” which means they must do what’s right for you financially. So, they can recommend stocks just because it will make them money. There are also very honest, above board brokers who will do the best they can for you. It’s just hard to tell. Clark recommends that you pay for advice if you’re having questions. You don’t have to hire the person to actually invest for you. But just giving advice can help you make your own decisions. Clark likes people to interview 5 people about investments. Ask them how long they’ve been in the business. Check out financial planners at napfa.org. You will find fee-only financial planners there.

Contact the Financial Industry Regulatory Authority (FINRA) hotline at (800) 289-9999 for more information about firms and their registered representatives

If your brokerage firm is legitimate your money will be held by an outside holding company, not with your brokerage firm. These outside firms audit your brokerage firm and provide your account statements. The victims of the Cook/Kiley Ponzi scheme received their monthly statements directly from the firm. Each month these statements showed a modest gain; all of them were fraudulent. (My brokerage firm uses Pershing.)

Invest in what you know, diversify and get a second opinion:
What is a foreign currency exchange? I googled “Vantage Foreign Currency Exchange” (supposedly this is the investment the victims were sold) nothing came up. Don’t put your entire life savings in an investment you can’t find on Google. If you are skeptical of an investment get a second opinion.

The less you know about investing the more you need to diversify.
Warren Buffett

For another take on this topic read Grace's Financial Failure can happen to Anyone.