As P.T. Barnum was quoted as saying, “there’s a sucker born every minute.” And stories about people falling for investment schemes that really are too good to be true make me wonder if Barnum was right.

Allow me to share a few examples with you.

My first lesson occurred when I was a young man just getting started in the world of finance back in the late 1970s. I worked out at the Washington Athletic Club in downtown Seattle.

Many of the club members were successful businessmen, much older and (I would have expected) wiser than me. I eagerly listened to conversations over many months, including ones about a “10% / tax-free / no-risk” investment several had invested in.

As I look back, those words put together should have set off an alarm, but what did I know as young guy back then? $2.25 billion of tax-free municipal bonds issued by the Washington Public Power Supply System to build two nuclear power plants. I was impressed and even envious that these guys could get in on something like that.

Investors snapped up the bonds, partly because they seemed to have the solid support of government agencies. But unlike bonds on prior power plants, these bonds did not have these guarantees.

Over the many following months, it became clear that this dream investment was beginning to sour.

Fallout from a record bond default spread from Washington to Wall Street — and the locker room of my gym.

The deal that became known as “Whoops” left investors who thought the bonds were a safe haven for their money, many who were relying on the securities for retirement income, with huge losses.

Reports showed that even big insurance companies like Aetna Life & Casualty and Kemper got hit for $50 million and $24 million, respectively, on these bonds.

As one experienced bond attorney told me, “read the bond agreement carefully.”

Another lesson came a few years later when clients were being approached by agents pitching “modern insurance products” from Executive Life, which quickly became the largest life insurance company domiciled in California.

The pitch was often to replace old policies with new ones that provided “more life insurance with lower premiums and higher cash values.”

Executive Life claimed that older companies were stuck with low-yielding investments while they were fortunate enough to hold high-yielding bonds that would provide better benefits at lower costs.

Buyers were given pretty projections but were unaware of deep underlying flaws inside Executive Life.

Fortunately for my clients, I had long followed professor Joseph Belth at the Kelley School of Business at Indiana University, who wrote an independent monthly periodical about insurance companies and products.

Early on, Belth began doing in-depth research about Executive Life and its practices. And the more he dug, the more concerned he became.

Belth discovered the company’s unusual (almost incestuous) relationship with junk-bond king Michael Milken and Drexel Burnham Lambert.

You may recall this period in our history with corporate raiders doing leveraged buyouts of companies financed with junk bonds — often with less than 5% cash down.

Milken and Drexel would provide the financing through huge amounts of risky junk bonds.  Executive Life would buy the junk bonds featuring very high promised interest rates that would in turn allow it to sell life and annuity products at what appeared to be very favorable rates.

Raiders would then terminate their prey’s well-funded pension plan, use cheap Executive Life annuities backed by the junk bonds to buy out promised retirement benefits for workers, and pocket the pension fund balance — frosting on the cake for raiders.

The supposed high yields on the junk bonds were also used to pitch the “modern” life insurance products agents used to replace older policies of customers.

Sadly (but not truly unexpectedly), the whole scheme collapsed as companies burdened with huge amounts of high-interest rate debt defaulted on bonds, and Executive Life was declared insolvent in 1991.

Records show that Executive Life held more than $9 billion of high-yield debt.

I always wondered how the insurance regulators allowed Executive Life to hold so much risky debt, something that was remarkably uncommon in an industry known for its required conservatism.

Bond holders were left to scurry for pennies on the dollar. Executive Life policyholders were forced to take a big hit as the California Department of Insurance tried to rehabilitate the company.

And those unfortunate pension plan participants holding Executive Life annuities were hit with big retirement benefit reductions.

Milken, DBL, Executive life executives and plenty of insurance agents made millions of dollars.

Of course, Milken went to prison and Drexel was forced into bankruptcy for its involvement in the illegal activities in the junk bond market, but the damage had been done to the public.

Belth saw this sad story developing — which, fortunately, allowed me to help clients get out while the getting was good.

Of course, who can forget about Bernie Madoff, who was the admitted mastermind of the largest known Ponzi scheme in history?

His scam was amazingly quite familiar, pitching high returns with low risk. Wow, sign me up! And, boy, did folks do exactly that, putting an estimated $65 billion with Madoff.

How in the world can you get high returns with low risk?  Bottom line: you cannot.

The fraud was actually implemented quite simply. You make your investment check out to Bernard L. Madoff Investment Securities. Madoff supposedly opens your account and invests your money.

And voila: Bernie L. Madoff Investment Securities provides you with a computerized statement showing how well your account is doing.

What could be wrong? Oh … there was no independent custodian for your holdings. As long as Madoff could get new clients to pony up new money, the Ponzi scheme continued to work just fine, as money robbed from Peter was used to pay Paul.

But as with the ill-fated Titanic, when the music stopped, there weren’t enough chairs for everyone, and the Ponzi scheme collapsed.

The Securities Investor Protection Corporation trustee estimates actual direct losses to investors at $18 billion, of which just over $14 billion has been recovered and returned.

And Madoff died while serving 150 years in prison.

Note to self: Make sure there is an INDEPENDENT CUSTODIAN holding your portfolio assets.

Finally, here’s a more recent story from Jason Zweig, who writes “The Intelligent Investor” personal finance column in The Wall Street Journal.

In a 2024 column, “When Interest Rates Go Down, the Hucksters Spring Up,”  Zweig wrote about a peculiar investment called “Mega High-Yield Term Deposit” that claimed to offer up to a 15% guaranteed annual return for 10 years.

Seem too good to be true given current rates on U.S. Treasury bonds running about 4% and even high-yield (junk) bonds at 7%? Well, read on.

Zweig did the kind of digging that few investors can or will do, finding “a tale of nonexistent companies, illusory returns and unlicensed salespeople making absurd claims.”

He tracked down the firm’s chief executive who claimed the products were never launched and that online marketing was done by unauthorized third parties.

Further digging led to a man supposedly running the portfolio who claimed to have worked as a high-yield bond trader at Goldman Sachs. A quick check with Goldman confirmed that he had not, so the guy just “apologized for any confusion his claim may have caused.”

It turns out the guy had been barred for life from the securities industry by FINRA and fined for allegedly forging documents and stealing approximately $140,000 from an elderly customer with dementia.

Zweig ended his column saying, “If it sounds too good to be true, it definitely is.” 

I leave you with the wise words of famous investor Warren Buffett, who said, “the difference between successful people and really successful people is that really successful people say NO to almost everything.”

Just say NO to things that seem too good to be true!