(FORTUNE Magazine) – Investment scams come in all stripes and sizes. The phony sweepstakes promising free trips to Hawaii, the eel farm offering outrageous returns, and the Florida real estate that turns out to be a swamp are easy enough to spot. But grifters are becoming more sophisticated, and so are the stories that they weave. It is not just the trusting little old lady in Boca Raton who is being taken by today's swindlers, but doctors, lawyers, accountants, and even CEOs.

What's going on? Some people have fallen behind on their retirement savings and are looking for magic potions to make up for lost ground. Other investors have simply developed an insatiable appetite for high returns in this seemingly endless bull market. In either case, they keep reaching for the extra-plump returns, and the armies of sinister con men out there are only too willing to play on that greed.

New kinds of scams are popping up every day. Some of the more clever ones involve phony securities or investments sold over the Internet. Others are twists on old-fashioned frauds like Ponzi schemes or selling interests in worthless businesses. Even the most astute investors are liable to get taken by these new cons if they think they can get a free ride. Lee Errickson, an investigative investment analyst at Coopers & Lybrand, relates how once, while snowed in at a train station, he struck up a conversation with an international financier. The financier was about to loan several million dollars to an Arab in a complicated deal that was supposedly going to pay him 14% interest, when the normal rate at the time was closer to 6%. "I found holes in his deal in 32 seconds over a cup of coffee at Penn Station in the middle of a blizzard," says Errickson. It wasn't that the financier was stupid, adds Errickson, rather that "he allowed greed to cloud his judgment." The best protection anyone can have against being swindled is simply to remove that cloud.

Here is a look at some of the latest scams that are cruelly separating investors from their money. Those who try to become familiar with as many different schemes as possible will be better equipped to avoid other people's costly mistakes.

A $700 MILLION PONZI SCHEME?

Sometimes an investment sounds so reasonable and enticing that no matter how careful you are, its fraudulent nature is nearly impossible to detect. Such appears to be the case with the Bennett Funding scandal, which duped 12,000 individuals and 245 banks in what the SEC calls America's most massive Ponzi scheme. How did it work? These people lost their retirement nest eggs and college savings by investing in supposedly safe office-equipment leases, which were for the most part innocently peddled by their brokers.

If anything can be learned from this, it's to diversify your investments. That's something Anthony Capriglione, 73, a former CEO of a small New Jersey bank, wishes he had done. Repeatedly over the years, he transferred all of his IRA and pension funds into Bennett leases and persuaded family and friends to do the same until their stake totaled $1.4 million. "I put all my eggs in one basket," he says, "because it was doing so well." Before he invested, he took a trip on behalf of his bank to the Bennett offices in Syracuse, N.Y., and was impressed with the strong underwriting guidelines he saw enforced. All that due diligence was worthless, though, on the day the money dried up.

When the Bennett Funding Group went bankrupt last year, there were about $1 billion worth of claims against assets valued at $300 million, meaning investors are short some $700 million. Its list of creditors include lawyers, doctors, a former judge, accountants, a risk assessor for an insurance company, and many successful entrepreneurs. Bennett purchased leases for office equipment such as copiers, faxes, phones, and computers, then resold them to investors. The leases were marketed as tax-free and safe investments, since the payments for the office equipment generally came from municipalities or federal agencies (including the Department of Defense and, ironically, the FBI). Some even had an insurance component that seemed to guarantee the returns. The catch for so many of the victims was exactly that--guaranteed high returns with no more risk.

Investors received a check every month up until the private, family-controlled company filed for Chapter 11. Other than the fact that they were not registered securities (and thus not filed with the SEC), there was nothing obviously outlandish about the leases. Their returns of around 8% to 12% were better than an average municipal bond's.

It's not that the Bennett operations were a complete fraud. There was a real business around which the alleged sham was built. "Around this core of reality," explains bankruptcy trustee (and former SEC chief) Richard Breeden, "was spun a web of imaginary activities, with the result that people could be shown things that were real, but they had no way of evaluating the magnitude of claims against those things." The problem, he says, was that Bennett sold the same leases multiple times to different investors. Some of the leases were pooled together, with the same ones represented in different pools. Others were entirely fictitious or were pledged as collateral to banks before being sold to investors who were unaware that what they had bought had already been pledged to someone else. By the end of the game, Bennett was paying out over $30 million a month to investors but was collecting only about $13 million from actual leases.

On June 26, U.S. attorney Mary Jo White indicted former chief financial officer Patrick Bennett on 37 counts that include conspiracy, securities and bank fraud, lying to the SEC, money laundering, and concealing assets. His brother Michael and two others were charged with conspiracy to obstruct an SEC investigation. All pled not guilty. Patrick's lawyer says the company was not a Ponzi scheme, nor was it run for Patrick's "personal enrichment."

Court documents, however, paint a different picture--one of Patrick Bennett running amok in the company's finance department from 1990 to 1996, fraudulently overstating income in financial statements to make it appear that the company was profitable when it had actually suffered losses. (One red flag for investors: The company changed auditors in 1991, from Arthur Andersen to a smaller, less well-known firm.)

Patrick and his brother also allegedly diverted hundreds of millions of dollars to accounts that he controlled, and spent tens of millions on speculative ventures such as hotels, a horse racetrack, failed casinos, and a mall project meant to attract a horde of Canadians to northern Maine (they never came). The most exorbitant waste of money, however, was probably the construction of a $14 million replica of a side-wheeler casino boat called The Speculator.

Breeden has already distributed $110 million to secured creditors such as banks, and another $133 million is awaiting the court's decision on who is entitled to it. But that's small consolation for all the individual investors who have yet to see a dime. "I think the bankruptcy laws are cruel toward investors today," complains Henry Schaeffer, 78, who leads a small splinter group of displeased victims. "Professionals suck out so much money while investors sit on the sidelines." Without pros working on the case, though, it is doubtful anyone would see any money at all. Breeden intends to recover at least 25 cents for every dollar that individual victims invested.

It is easy to say investors could have avoided much grief if they had exhibited more caution. But no one could reasonably have expected to know much about Bennett Funding--a private company without an independent board of directors, answerable to no one but the Bennett family. There were warning signs. The fact that the securities they bought were not registered with the SEC should have made investors automatically wary, as should the company's change of auditors. But the real question is, Are complex investments like these appropriate for the little guy? Probably not. Apparently, though, the coaxing of benighted brokers coupled with the lure of handsome guaranteed returns was too hard to resist. "It's like kids playing with firecrackers," reflects Breeden. "They do blow off their fingers sometimes."

GET YOUR "SPECIAL" BANK NOTES

The Internet, a place filled mostly with trusting people, is becoming a bonanza for the greedy grifter. The SEC now receives close to 40 complaints a day about Internet scams. Never make an investment decision based solely on what someone tells you on the Web. For one thing, you can never be sure whom you are talking to online. A smalltime con artist can give himself some credibility by building a Website that looks better than those run by large corporations. Behind that posted message or E-mail from a company officer could really be a shortseller who wants to scare you into unloading a perfectly good stock. Stock promoters can lurk clandestinely in popular investment chat rooms trying to create a buzz and pump up their shares; sometimes they go so far as to set up their own fake "investment newsletter" sites that are really just tout pages.

One recent and particularly pernicious Internet scam involved fake securities called prime bank notes. John Finnerty, an expert on bogus securities at Coopers & Lybrand, explains that imaginary investments like prime bank notes look "similar to something people have seen before but with a little twist that justifies the higher returns promised." Of course there is no such thing as higher returns without higher risk.

Traditionally targeted at portfolio managers and wealthy individuals able to put up millions, these prime bank note scams are wending their way down to the general investing public. In one instance the SEC brought a case against a trio who used CompuServe and the Internet to solicit investments ranging from $12,000 to $240,000. The m.o.: A promoter promises to get you into an exclusive circle of investors who are pooling their resources to participate in a secret market carried on among the top 100 "prime" banks in the world. These banks transfer billions of dollars among themselves every day and are sometimes willing to pay extremely high interest rates, you are told, to temporarily park their funds in special holding accounts. Your money supposedly goes to open up one of these accounts and is guaranteed to at least double or triple.

In his pitch the crooked promoter strings together jargon from all sorts of legitimate financial instruments, such as derivatives. Upon close inspection his spiel is actually nonsensical, but many people who think they are financially sophisticated are too embarrassed to admit they don't understand exactly how the prime bank notes are supposed to work.

"It's easy to get taken in by the atmospherics," says SEC enforcer Paul Huey-Burns. While most conventional frauds involve something investors can inspect, "in the case of prime bank notes," he cautions, "there is nothing there except pieces of paper. They're tailor-made for the Internet."

THERE'S GOLD IN THEM THAR HILLS

What investor can resist getting in on the ground floor of an exciting new high-tech industry, whether it's the Internet, wireless cable, or interactive video data services? The trouble is, most investors don't understand these businesses and are therefore juicy targets for a con. "One thing that is impressive," notes Huey-Burns "is the extent to which fairly sophisticated people can be taken. People read about Craig McCaw, and the pitch is, "You could be like Craig McCaw.'' These high-tech scams, which typically involve partnerships in phony businesses, have been pulled off hundreds of times by various con men who snare investors with a much older technology: the telephone.

A series of schemes investigated by the Federal Trade Commission started with an offer to invest in a 900-number dating service and psychic hot line. The scam evolved to an Internet shopping mall and Internet service providers that were going to set up operations in cities like Seattle, Chicago, and Detroit. All of these investments, says the FTC, were promoted by the same group of alleged tele-swindlers working mostly out of boiler rooms in Los Angeles.

According to the FTC, the con men would call potential investors and ask them to pony up between $10,000 and $20,000 for partnership shares. The promoters would then hold a partnership meeting and distribute about 15% of the proceeds to investors, pocket the rest, and wash their hands of any further involvement. By the time the investors would figure out what was going on, they'd be left with shares in companies that had little infrastructure and no money. The addresses listed as headquarters were just mail drops, and the phone numbers were answering services. Meanwhile, the promoters were busy rolling out their next operation.

Business investment scams are not limited to high tech. The FTC and SEC have brought actions against operations selling everything from shares in oil-drilling concerns and silver mines to movie production companies--even a coconut- chip distributor in Costa Rica.

Another favorite racket involves investments in goods such as rare stamps and semiprecious gemstones. Investors are told, for instance, that they can buy gemstones at below-market rates and, through the promoter's brokerage services, later sell them on the open market. The dupes are sent gems and receive periodic updates about their supposed value. Then they are offered a chance to cash in their "appreciated" stones for credit against more expensive ones. Here's how it works. First you pay, say, $300 for a stone that's really worth only $100. Then after a few months you're told that the gem is now worth $500 and you can put that amount toward one worth $700. You like the quick returns, so you go for it. When it finally comes time to sell, the grifters can't be reached, and the price the stones fetch at a jeweler ends up being only about half what you paid for it. How can people fall for something like this? FTC attorney Robert Friedman explains, "People get sucked in because they think they have made money already."

The only thing worse than trying to recover from a swindler's sucker punch is to get slugged again while still winded. This is what happens in recovery-room operations, where a con man contacts victims of previous scams (their names are circulated on "mooch" lists) and says he'll help them get back the money they lost. Investors gladly pay a "processing" fee and are thus double-duped. In one 1994 case in Atlanta, alleges the FTC, some investors who had already been rooked into buying practically worthless mobile-radio licenses were called by a person posing as a telecom-license broker. For a fee, he told the hapless investors, he would help them recover their stake. Investors anted up and never saw their money again. Ouch.

What's your likelihood of getting ripped off? Most of today's brokers and financial planners are honest people who want to help you prosper. But your chances of becoming a victim are increasing. Investors are targeted by swindlers the same way they are by run-of-the-mill marketers. "People get on lists," says Susan Grant, a director of the National Consumers League. "Demographic information is available from government agencies, and it is possible to get names of retirees or people who have invested heavily," she adds.

The best defense is knowing whom you're dealing with and what you're buying. It's a pity to live in a world where fear and suspicion reign, but if you understand some of the ways the criminal mind works, you can save yourself not only a lot of money but a lot of pain.