Is this a sound investment, or one that should be avoided?
A friend approached me with an investment opportunity and I would like to know if it sounds legitimate. It involves investing in a company that engages in proprietary trading of international currency, by being a lender to the company. The company guarantees 12 percent or 25 percent of the spread, whichever is greater. As a lender, you are given a 90-day perpetual note that automatically renews. If you choose, you can call in the note at any time, at which time it reverts to a 90-day note. At the end of 90 days you can get all of your money back. If you want to, you can take out any interest you've earned each month. You can view how much interest has been deposited into your account on a daily and monthly basis.You can also participate by rolling over existing IRA accounts to a self-directed IRA company. The trading company is regarded as an institutional account and is approved by the IRA company. If you choose, you can have the monthly interest you earn sent back to your account at the IRA company to make other investments. Does this sound like a legitimate investment opportunity?
I would advise to AVOID this type of investment. When it comes to investing, if it sounds "to good to be true" it usually is. There is no "get rich quick" in this industry. There may be a "get poor quick" if you try to take these types of short cuts.
At Aventine Financial Group, LLC or any other Fiduciary, Registered Investment Advisor, and Certified Financial Planner they would not be recommending these types of “speculative” investments. Stick with a Warren Buffett high quality, dividend paying strategy and in the long term you will finish ahead. I wouldrecommend reading The Intelligent Investor to get started.
Frank J. Fiumecaldo, CFP®
Founder & Partner
Aventine Financial Group, LLC
c 848.469.6950 | o 212.269.2512
This sounds very sketchy to me. I have known scams that involved currency trading, and I have known scams that involved promisary notes. The promised rates are also too good to be true. I would ask if this is a registered security with your State's securities board or the SEC. Also, ask if the person who is promoting this a registered investment advisor or a registered representative of a Broker/Dealer firm. If not to any of these registrations I would recommend you not participate. registrations are a form of consumer protection, while registration of a security does not guarantee success and you could still loose, you won't be loosing to a fraudulant scam artist.
If they say they are registered check them out at the FINRA.org website, the SEC.gov and your State's securities Board site.
This "investment opportunity" has all the characteristics of a classic Ponzi scheme:
- A "proprietary trading strategy of international currency" (mysterious! must be real!)
- A "guarantee" of at least 12%
- 90 day liquidity
- a "view" of interest accumulating into your account
- Best of all, you can roll your IRA into this investment and consolidate the funds into a trading company
- There is no such thing as a guaranteed investment in anything.
- A projection of 12% returns is extremely high - Bernie Madoff promised returns of 10-12%, but 6-8% returns in stock investments would be high. What is this magical strategy?
- What is that "view?" Anyone can fake accounts on a website.
- If you consolidate your funds into a trading company, you give up custody of your assets. How do you get them back?
- Most importantly, if this is such a great strategy, why are the promotors trying to attract $10,000 IRA accounts? Why wouldn't they pitch to high net worth families and institutions for $10 million accounts if the strategy was any good?
Bottom line: if the "investment" sounds too good to be true, it is!
The old adage is that it's not so much the return ON my money that concerns me as the return OF my money.
You ask if it's legitimate. We can't tell for sure. You can check them out to see if they have the necessary registrations and you can probably check out the principals to see what their qualifications and career history (and enforcement history, if applicable) are. But for sure, it's a risky investment. You have a nice upside -- 12% or 25% of their profits but what happens if they lose? By the time you discover they are not doing well and take action to start that 90-day clock, it may be too late. If they can't make the 12% interest payments and can't refund your loan balance you're up the proverbial creek.
Another thing to consider is that if this were such a good deal, the company wouldn't need to have to pay 12% (or a share of profits if they do well) to investors. So the fact that the upside is so attractive is in itself a good indicator that the whole scheme is really risky. If you trust this friend and can afford to lose your investment, by all means take a shot. Just be prepared for a much-less-than-hoped-for outcome.
Can you say, extreme risk. The foundation terms of this investment are carbon copies of ponzi schemes...high interest rates / high returns, easy quick liquidity.
The underlying currency business is risky.
Cheap capital has been easy for years, begs the question on this "opportunity."
Don't proceed without a professional doing due diligence and having your lawyer involved.