The SEC said last week it shut down yet another Ponzi scheme targeting U.S. investors. This one was allegedly perpetrated by a small group of our citizens through the Millennium Bank located in the Caribbean nation of St. Vincent and the Grenadines. By the way, St. Vincent has never been known as a Gibraltar of finance, in case you have never heard of it either.

Since 2004, advertisements to investors have touted CD rates of 8 percent available supposedly because of the extraordinary skills of its Swiss parent bank and its status as being off shore, meaning primarily outside the normal reach of U.S. law.    

Instead of being an investment, fewer than a dozen crooks from North Carolina to California divided the spoils from checks collected in St. Vincents and laundered through a Las Vegas branch of now-failed Washington Mutual. This was a relatively small scam, only about $68 million.

The real question from the rubble of Bernie Madoff, Allen Stanford and Millennium Bank is this: What were the investors thinking? The individual greed motif comes to mind handily. Each of these frauds has a distinctive package, including some special ability to invest in exotic vehicles not available to most of us. This feeds our strongly held belief that someone else has an unfair advantage over us.

Regardless of special features, you will never fall prey to one of these if you only deal with established securities firms or banks that you investigate. Bernie Madoff was in control of printing his bogus client statements because it’s the only way the scheme can work. If you are an accredited investor, one having over $1 million with a regular six-figure income, you might wish to deal with a hedge fund but that carries additional risk no matter how you slice it.

Rule No. 1: Never write a check to an adviser rather than to the credible institution. Although it is legal for a registered investment adviser firm to have custody of client assets if it jumps through extra hoops, it is simply not necessary for most of us to do business that way. What do I mean?

In our case, I tell prospective clients they will always make their investment checks out to TD Ameritrade or another custodian, never to Stewardship Capital Ltd. That way, there is no comingling of our assets with theirs, no employees can steal money and no Ponzi schemes can occur. The client should always receive separate monthly or quarterly account statements even if the Advisor sends out additional statements.

In Madoff’s case, he and his phony statements claimed to be making 12 percent each year with almost no variation whatsoever. That consistency for managed accounts is unbelievable – literally! Eight percent CDs over the past four or five years are just that – unbelievable! Use your head instead of blind hope, and you should not get into trouble.