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ALEX COHEN, host:

In other investment manager news, Bernard Madoff gets to stay in his cushy $7 million penthouse. Yesterday, a judge allowed him to remain free on bail. If convicted, the 70-year-old investor could go down in history as having run the largest Ponzi scheme ever. Some say there were lots of red flags that his clients should have noticed. Here to tell us how you can avoid investment scam is Michelle Singletary, a personal finance contributor for Day to Day. Hi, Michelle.

MICHELLE SINGLETARY: Hi.

COHEN: So what were some of these warning signs that investors who put their money with Madoff should have seen?

SINGLETARY: Well, I think there were at least two big ones that now, you know, lots of people sort of have pointed out, that first of all, many people didn't understand how he was making his money. And you know, as I was reading about this story, I pulled up an article from Kipling, our magazine, and this is how they described what he was doing. Split-strike conversion options strategy. Now, I don't know about you, but that would've just made my eyes roll right there.

(Soundbite of laughter)

Ms. SINGLETARY: And then the Wall Street Journal explained the strategy this way, that Mr. Madoff would buy a basket of stocks resembling an S&P Index while simultaneously selling options that pay off the buyer if these stocks soared, while also buying options that pay off if the index tumbles. So there you go.

(Soundbite of laughing)

COHEN: Eyes-rolling, check.

Ms. SINGLETARY: And, you know, that's the thing. One of the things that when you invest, if you truly don't understand how you're going to make money, you need to walk away no matter what the promised returns are. And many people didn't do that, and inexperienced people. I read an article where a hedge fund manager who didn't invest with him didn't do so because as he was trying to explain how he was going to make money, the hedge fund manager was like, you know what, I don't understand what you're saying. And their company walked away and probably was one of the few that didn't lose billions of dollars with Madoff.

COHEN: Now, Michelle, you get money. But there's plenty of Americans who easily get confused by even the most basic of these things. So how does the average Joe avoid being scammed by someone like Bernard Madoff?

Ms. SINGLETARY: You have to do your research. You can't just sit there and listen to this impressive presentation, which they almost always are, and think, wow, this is great. I'm going to do this. You've got to do some research. And the first place you should go if you're a regular Joe investor is the North American Securities Administrators Association. Now, I know that's a long title, but I'll give you the abbreviation, NASAA.

And it essentially is the association that represents state security regulators. They've got a ton of information on how to begin to research to make sure that this investment is legitimate. The first thing is to investigate the adviser. Make sure that they're registered. You know, I've covered a lot of these cases, and many times if people had done that one check to just make sure they were registered, they would have avoided all the losses.

The other thing is to make sure the investment itself is registered with the state. Again, if people would do that, and it's not registered, they would have walked away. Always stay in charge of your money. One of the things in the Madoff case is that he was the custodial of the money as well as taking the money. And that's a big no-no. You should not be writing a check directly to an investment adviser. If they say, you know, just write me the check. You need to run, run, run.

Take notes. You know, I've been in these presentations because I do columns on this, and I've been taking notes. And the person got very nervous and was like, why are you taking notes? And I'm looking at them, like, because I need to know what's going on. And if that - you get that feel that they don't want to give you or hand you out the information, that is a huge, huge red flag.

COHEN: And speaking about taking notes, we here at Day to Day, and we know, Michelle, you too like to be as accurate as possible. So we want to make a correction for something that aired the last time we had you on. Last week, we did a segment with you of listener questions, and it turns out we got a few biographical details about one of our listeners not quite right. This is a listener named Joan(ph), who asked about withdrawal rules. Well, the correct pronunciation of her name is Joan Fantazia(ph). Joan is 52, not 53 years old. And while Joan is a former journalist for the Los Angeles Times, she is not retired, which is what we had said.

We might have gotten those facts wrong, but I do want to point out, Michelle, your advice about retirement was still absolutely sound. So thanks to you, Joan, for your correction, and thanks always to Michelle Singletary, Day to Day's personal finance contributor. Thanks, Michelle.

Ms. SINGLETARY: You're welcome.

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