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BC-based Scam Highlights Ponzi Operator’s Sleight of Hand

David Baines of the Vancouver Sun  has written an insightful story about Canadian victims of a prime bank fraud.  The scam revolved around a company called International Fiduciary Corp. SA (IFC), run by Malcolm Stevenson (Stevenson) and Daniel Byer (Byer) both of Abbotsford, British Columbia, and Preston Pinkett II (Pinkett) of Virginia.
The scam will be familiar to regular [...]

David Baines of the Vancouver Sun  has written an insightful story about Canadian victims of a prime bank fraud.  The scam revolved around a company called International Fiduciary Corp. SA (IFC), run by Malcolm Stevenson (Stevenson) and Daniel Byer (Byer) both of Abbotsford, British Columbia, and Preston Pinkett II (Pinkett) of Virginia.

The scam will be familiar to regular readers of this blog.  Baines writes:

Together they induced dozens of people to invest a minimum of $100,000 each for reinvestment in “first tier medium term notes,” which could purportedly be purchased at a discount and sold at premium, generating a return of six per cent per month on a “risk-free” basis.

To rationalize these inordinate rates of return, investors are told a big cock-and-bull story. They are told that the financial markets are controlled by a few big banks that routinely make these sorts of returns, but don’t tell anybody so they can keep all the spoils for themselves. Ordinary people can participate by pooling their money in companies like IFC, but to keep the banks from spoiling the party, they must keep their participation a secret.

In total, U.S. and Canadian investors lost about $40 million in the scheme.  IFC’s court-appointed U.S. receiver has recovered only about $8 million.  After receiver fees and competing claims, the net amount available for investors will likely be minimal.

IFC included four hallmarks of a Ponzi scheme:  (1) expert salesmanship, (2) recruitment through a place of worship, (3) offers to ‘test’ the program, and (4) borrowing the credibility of trusted advisers (attorneys in this case). The most insidious of those elements is the offer to test the program with small amounts.  The scam artists accept $10,000 to $25,000, and deliver the outlandish returns right on schedule.  (They scam from some other mark the money they need to deliver those returns).  With the program thus ‘proven,’ the scam artists have no trouble convincing the mark to scrape together every dollar he or she can raise.

Just as with a sleight-of-hand magic trick, the ’test’ works because it focuses the investor’s attention on the wrong hand-focusing them so intently on the specifics of how the investment ‘works,’ that they completely overlook the trustworthiness of the person offering the investment.  In one sense, every investor who has ever lost money to a stockbroker or scam promoter has fallen for a variation of the same trick.

Private investor protection concentrates on the hand that the scam artist magician doesn’t want you to look at.  The baby boomer or senior with any interest in keeping what he or she has saved will hire an SEC-trained protector who knows all the tricks.

 

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