It has been my experience that many Utahns make investments in new companies based on a combination of naivete, trust and greed.

Many questionable startup companies successfully raise investment capital by appealing to these basic instincts. Potential investors want to believe in the entrepreneur's "vision," especially when that vision would translate immediately into huge gains for a proposed investment.

The fact is, many Utahns are trusting by nature. They want to believe in a financial opportunity that is primarily based on faith in the presenter and secondarily in the potential of the business. Hard questions that investors normally ask are not asked because of that trust.

Sometimes the investor's trust level is increased because of the promoter's religious affiliation (even though there is no evidence to suggest that religious acumen translates into financial success). Many residents of the state are also naive about investing. They don't know the difference between buying securities in a new enterprise and investing in established public companies. They don't seem to be aware that 17 out of 20 new enterprises fail. Hope springs eternal that this investment is different than others they may have experienced previously.

Greed, however, is the emotion that drives investors to make foolish decisions. The chance to make that one big connection that will lead to financial independence is a powerful force that causes investors to make hasty and ill-advised investments.

I recently attended a meeting to help a friend perform due diligence on an investment he was considering. The promoter presented a plan that was to return 10 percent per month (yes, that's right: 10 percent per month, not per year). Immediately, the greed starts working. Who wouldn't be interested in 10 percent per month? These spectacular gains were to come from a little-known off-shore bond trading account run by someone of "impeccable" reputation. The investor's capital would go into a trust, and those funds would supposedly never leave a local bank. Ostensibly, they were just needed as collateral for the trading program.

Then the promoter brought in the head of a local charitable foundation. His pitch was to have you give 20 percent of your monthly earnings to his foundation for letting you in on the deal. Apparently, he was there to establish trust; if a foundation is involved, it must be OK, right?

Unfortunately for the promoter, the third element - naivete - couldn't come into play, because I asked too many questions. I wanted to know the details of how the trading account operated, the name of the trust officer at the bank who was supposedly involved and why IBM, General Electric or other well-managed companies didn't do something like this since they are lucky to make 10 percent profits per year. I even asked why they needed my money, since even modest amounts compounded at 10 percent monthly would turn into millions of dollars rapidly.

There were no real answers to any of these questions. I explained to my friend that this was a classic Ponzi scheme and that I thought all of the people we had met that evening would end up in jail when the line of greedy, trusting, na.ve investors ends.

This scenario is repeated again and again in one form or another, whether the money to be invested is in common stock, LLC memberships, notes or even trust instruments. So my advice is, whenever you are tempted to invest in a new enterprise, check all three of these emotions in yourself - trust, greed and naivete - to make sure you are making rational decisions.