Be Careful Who You Trust

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Red FlagSocial Consensus/Phantom Riches

Laura Astorga works longer hours these days. She needs to so she can build her savings back up. She lost most of it in a Ponzi scheme aimed at the vast Hispanic community in Los Angeles. It was orchestrated by Juan Rangel.

Rangel used a range of persuasion tactics to lure his victims. He promised "phantom riches" in the form of annual returns of more than 60 percent—a very unlikely rate of return. He advertised his company in Spanish language media, played up his ethnic identity and used local celebrities to pitch his scheme. Rangel also held investment seminars in the community. He convinced people to take equity out of their homes and invest their hard-earned savings in his company.

But Rangel did not invest the money Astorga and others gave him. Instead, he stole at least $30 million from more than 500 Hispanic, mostly working class, victims. The company was a sham—it wasn't registered with any regulatory or government agency. He also secretly and fraudulently took title to many of their homes.

"Cons have an easier time persuading their targets to invest when they appear to belong to the same group or to share a common characteristic,” said Gerri Walsh, President of the FINRA Investor Education Foundation. “Because you have this sense that everybody in the group is doing it, so it must be a good thing to do."

That's called social consensus, and experts say it's a common tactic of crooks and a key driver of affinity fraud. But there are steps you can take to protect yourself.

Robert Retana, an attorney who grew up in the Los Angeles area, offers this advice: "It's important to check with the SEC and FINRA to find out if the company is registered. It's also important to realize that if a company is offering excessive rates of return, that's a red flag. It's important for people not to be impressed by someone who is well dressed, drives a fancy car or has a nice office—it gives the impression of being a successful business person, but that doesn't mean he is not committing fraud."

State, national and federal regulators have tools to help you make better informed investing decisions. Always ask and check before you invest.

Laura Astorga and her friends and neighbors have learned a painful but important lesson about the importance of doing their homework before investing. As for Juan Rangel, he was sentenced to 22 years in federal prison.

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