CCa has always refrained from investment products and management on which it could not adequately complete due diligence. A recent example of such an investment includes earlier this year a successful real estate management company that approached CCa and proposed CCa principals invest in its latest project and that CCa recommend to it to CCa clients. We said no given the lack of knowledge and comfort with the management company's joint venture partner. Now the real estate management company is suing the same joint venture partner for misappropriation of funds.

Hedge funds in general have not met our due diligence requirement either. Now we see how some of the biggest hedge funds didn't do their own due diligence when it came to Bernard Madoff, the former NASDAQ Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC. Madoff was recently arrested and charged with securities fraud and accused of bilking investors of billions of dollars. It is just the latest of several high-profile cases of advisors and/or managers stealing funds entrusted to them by their clients. Several well-known hedge funds invested their clients' monies in the Madoff Ponzi scheme.

It also looks like some large international banks may have invested in the same Ponzi with their structured products' investors. Structured products have been in the media of late as a way of participating in the market upside with no downside. Beware of these offers..

Brett Arends of the WSJ recently offered these cautions regarding possible Ponzi schemes:

…Avoid managers who are unknown, or unregulated, or come without good referrals, or haven't been in the industry long…

…There are other red flags. The key one: Look out for an investment manager who wants complete control of your money, and asks for checks to be made out to him or a company he controls…

…You are safest when the funds are held separately, in custody at a big broker-dealer firm regulated by the Financial Industry Regulatory Authority and backed by the Securities Investor Protection Corporation…

…If your adviser manages your investments, but the funds are actually held at, say, Charles Schwab or Fidelity, it's almost impossible for him or her to run a Ponzi scheme…

…Also watch for… Any broker who "guarantees" investment performance, boasts a track record that looks amazing, or who tries to hustle you aggressively into investing…

…Ponzis like to keep the boat steady to avoid redemptions.