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The vast majority of investment scams do NOT sound too good to be true.

The Department of Justice recently won convictions against two Ponzi scamsters in a case involving promises of outrageous investment returns. That case gives us another opportunity to stress that most investment scams won’t look like this one. According to ajc.com: (more…)

Feds Allege $400 Million Ponzi

Scores of brokerage firms and hundreds of stockbrokers will be kicked out of the industry this year for unethical or illegal conduct.

According to the U.S. Department of Justice, a registered broker-dealer and several of its employees ran a five-year Ponzi scheme from the firm’s headquarters on Long Island, ultimately taking in more than $400 million and costing the 4,000 victims of the scheme more than $170 million in losses. According to a story by Jessica Dye of Reuters: (more…)

Another ‘Bad Report Card’ Fraud

We all have the experience of dreading the consequences of our own poor performance.

You can think of the Ponzi scheme operator identified below as a “bad report card fraudster.” See if you can figure out why we call him that. According to FINalternatives: (more…)

It Isn’t a Fair Fight

Our brains are wired such that the thought doesn’t occur to us.

We never think that the very impressive man or woman describing a promising investment is really an investment criminal trying to steal our assets. Our brains are wired such that the thought doesn’t occur to us. But, even if you are fully aware of the very real danger from folks who don’t “seem” dangerous at all, you are prone to believe that the battle is a game of one-on-one; that you’d never get more than one person to agree to be part of something so dastardly.  Unfortunately, history has shown us otherwise, as has a recent story arising from the biggest investment fraud in history. According to a press release from the SEC: (more…)

Owning a Bit of Facebook and Groupon

People who’ve read The Vigilant Investor would not have invested in this alleged scheme.

How’d you like to be one of the first to own public shares of Facebook and Groupon? That’d be a hard proposition to say “no” to, wouldn’t it? If you could offer people that opportunity, they’d come running. Last week the SEC shut down an alleged scam that offered just that. According to the SEC’s press release: (more…)

Creative Writing

Fraud never slumps; it just changes its appearance.

Think about it from a financial scamsters’ point of view. You want money; lots of money. Your challenge is to come up with a reason why people should give it to you. If people think that you can turn their money into more money, that’s certainly reason enough. So you become a creative writer, constructing a story about a promising investment opportunity. How much does this fictional investment return? You decide. What’s it called? You pick a name. How are the profits generated? Make up something that sounds believable. Last week, the SEC commenced an enforcement case alleging that Tyrone L. Gilliams and his company TL Gilliams, LLC (“TLG”) stole $5 million from investors by engaging in that kind of creative writing. According to the SEC’s press release: (more…)

False Due Diligence Promises

Traditional due diligence methods have proven spectacularly ineffective at identifying fraud.

A case out of the U.S. Securities and Exchange Commission caught my eye because I’ve spent the last few months traveling the country training investors and investment advisers about effective due diligence techniques. The U.S. Securities and Exchange Commission has alleged that a New York hedge fund manager misstated the due diligence that it performed. According to the SEC’s press release: (more…)

You Won’t Find a Rat By Looking For Cats

Only when you realize how powerfully that theory skews how you perceive the evidence can you throw it off and search instead for the thing that you are trying to avoid, a fraud.

Last week the SEC filed an emergency enforcement action to halt what it claims was an ongoing Ponzi scheme that promised investors attractive returns on investment in water-filtering natural stone pavers imported from Australia. Specifically, the SEC charged Eric Aronson, Vincent Buonauro, Jr., Robert Kondratick, Fredric Aaron, and the PermaPave Companies (PermaPave Industries, LLC, PermaPave USA Corp., PermaPave Distributions, Inc., Permeable Solutions, Inc., Verigreen, LLC) with bilking roughly 140 investors out of more than $26 million beginning in 2006. According to the SEC’s press release:   (more…)

SEC Accuses NY Hedge Fund Manager of Being a Bad Report Card Fraudster

Checking up on your financial adviser doesn’t require an ugly confrontation, and it doesn’t require you to believe that your adviser is a financial Hannibal Lecter.

The SEC believes that it has caught what I like to call a “bad report card fraudster.” These are investment advisers and hedge fund managers who start out with legitimate intentions but wind up running investment frauds when they can’t bring themselves to admit that their supposed investing acumen resulted in losses for their clients. According to the SEC’s press release: (more…)

SEC Registered Investment Adviser Charged with Running a $10 Million Ponzi Scheme

Learning about just the first level of due diligence will save hundreds of millions of dollars that would otherwise be lost forever.

There are different levels of due diligence — the process by which savvy investors size up an investment opportunity or a financial adviser. Most investors never use any of them (although they think they do).  We can, therefore, make tremendous strides in customer protection and cleaning up the investing landscape by educating investors large and small about the various levels of due diligence. Learning about just the first level will save hundreds of millions of dollars in money that would otherwise be lost forever. Every level of due diligence thereafter saves another chunk of what would otherwise be lost.  Last week, the SEC filed an enforcement action in a case that illustrates the importance of investigating at least two levels down.  According to the SEC’s press release: (more…)

SEC Takes Emergency Action Against Suspected New York Scamster

Unless you understand where that reaction comes from, it could lead you into a story very much like this one.

Yesterday we posted a story about William Baker who scammed friends from church and several family members out of $900,000 in connection with a supposed investment in distressed California real estate.  Last week the U.S. Securities and Exchange Commission took emergency enforcement action to halt another suspected scam targeting the family and friends of the defendant.  Specifically, the SEC charged Christopher T. Vulliez of New York City, and his company, Amphor Advisors LLC, with misappropriating at least $700,000 from family and close friends through what the SEC alleges was a bogus investment in a biotechnology company.  According to the SEC’s press release: (more…)

SEC Charges New York Fund Adviser with Fraud

An investment adviser who is recommending that you invest in a fund he manages cannot possibly be giving unbiased advice.

Does your registered investment adviser also advise a fund, whether a hedge fund, a real estate fund, or some other kind of pooled investment? Has he or she solicited you to invest in that fund? Probably so. A recent enforcement case from the SEC shows the danger in saying yes to such a solicitation. The SEC has charged Lloyd V. Barriger of Moticello, New York with fraud in connection with two real estate funds he managed– the Gaffken & Barriger Fund, LLC (the G&B Fund or the Fund), and Campus Capital Corp. (Campus). According to the SEC’s press release: (more…)

Staten Island Case Highlights Risk to Seniors

The financial legacy that they intended to leave to the next generation will instead buy a Porsche and a nice house for a “financial adviser.”

Last month, I got to meet Hollywood legend Mickey Rooney.  He came to a conference at which I was speaking to talk about his experience with elder abuse. His story involved a member of his family keeping him a virtual prisoner in his own home and looting his savings. He has testified before Congress about the problem. He’s just the tip of an iceberg. There is a wave of investor abuse on the way that threatens to make us forget Bernie Madoff. A story out of Staten Island, New York highlights the danger that faces all senior investors. According to silive.com: (more…)

Beware the Little Old Lady

The patrician businessman in a finely tailored suit must be legitimate. The hedge fund manager with a stable of race horses must be doing very well for his investors. How much harm could an 80-year-old woman cause? All are dangerous, illogical assumptions.

Prosecutors in New York have charged an 80-year-old woman and her son with grand larceny in connection with an alleged $10 million Ponzi scheme.  According to lohud.com, which covers New York’s Lower Hudson Valley: (more…)

CFTC Charges Staten Island Man with Commodities Pool Ponzi Scheme

If Congress continues to resist funding the CFTC to a level commensurate with its mission, investors will be at increased risk of losing their nest eggs to Ponzi schemes.

In a case that reminds us why it’s a bad idea to take investment advice from your brother-in-law, the U.S. Commodity Futures Trading Commission has charged Jeffrey Shalhoub of Staten Island, NY, and his company, Jeff Shalhoub Investments (JSI) of Long Island City, NY with robbing $300,00o from his in-laws and his former wife’s friends.  According to the CFTC’s press release: (more…)

Alleged Twenty-Year Scam Points to the Future of Investment Fraud

People brought up on the idea that only things that “sound too good to be true” are scams will be sitting ducks for scams that promise no more than one or two points more than market rates.

It looks like the U.S. Secret Service is branching out beyond protection of important people and catching counterfeiters.  Last week they arrested a former Royal Alliance stockbroker and charged him with wire fraud and money laundering in connection with an alleged twenty-year Ponzi scheme.  According to the U.S. Secret Service,  Timothy Jay Geidel of Hamburg, New York, ran his scam out of the offices of investment advisory firm Georgetown Capital of Williamsville, New York.   According to BuffaloNews.com: (more…)

‘Belgian Royalty’ in the News Again

Hedge funds are, therefore, the perfect vehicle for fraud.

We posted on the strange case of Guy Albert de Chimay in June 2010.  Chimay, who claimed to be a direct descendent of Belgian royalty, allegedly defrauded several investors out of more than $6 million through a scam centered on a supposed bridge loan facility.  Chimay allegedly gathered investor funds through investments in his hedge fund, New York-based Chimay Capital Management, Inc.  According to a recent story in HedgeCo.net: (more…)

Union Pension Fund Among Victims of Alleged Financial Scam

Whether you are responsible for the retirement savings of thousands of people or only for your own, the best time to investigate is before you have reason to suspect that anything is wrong.

This week, the U.S. Securities and Exchange Commission (SEC) filed an emergency enforcement case to halt what it alleges to be an ongoing fraud run by investment adviser Carlo G. Chiaese of Springfield, New Jersey, and his company, C.G.C. Advisors, LLC.  According to the SEC’s press release: (more…)

Repentant James Bond Draws Five Years Probation

In fact, Eisner and MacCaull simply pocketed investors’ money, sending phony account statements to convince their victims that Razor FX was legitimate and profitable.

James Bond drove an Aston Martin and spent a lot of time in casinos.  He has that in common with Bradley D. Eisner, the mastermind behind a Ponzi scheme that, between 2001 and 2008, took in more than $110 million from 272 investors.  Eisner and his partner in crime, Michael R. MacCaull, told investors that their company, Razor FX, made money by trading currency options.  In fact, Eisner and MacCaull simply pocketed investors’ money, sending phony account statements to convince their victims that Razor FX was legitimate and profitable.  In addition to his Aston Martin and his casino jaunts, Eisner used investor money to buy a $3 million home on Long Island and artworks by Picasso and Willem De Kooning. (more…)

Scam Spotting 301 - Class #4

An RIA who announces to the world that he manages the finances of a certain celebrity client shows more concern for his own pocketbook than for the reasonable sensibilities of his clients.

Your assignment from last class was to identify three red flags that could have warned investors away from Ken Starr’’s star-studded Ponzi scheme.  There are more than three apparent to a seasoned investigator, but three of the most prominent are: (more…)

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