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The U.S. Securities and Exchange Commission (“SEC”) has obtained a judgment against Evan K. Andersen, of Boston, Massachusetts - formerly the head of a hedge fund called Lydia Capital, LLC - for defrauding more than 60 people out of more than $30 million. According to the SEC’s press release:

The defendants told investors that they intended to use the hedge fund’s assets to acquire a portfolio of life insurance polices in the life settlement market.   Andersen and Glen Manterfield [Andersen's business partner] made a series of material misrepresentations and omissions, including: (1) materially overstating, and in some instances completely fabricating the hedge fund’s performance; (2) inventing business partners, offices, and investors in an attempt to legitimatize the firm and concealing the truth as to why key vendors and banks ceased relationships with the defendants; (3) lying about Manterfield’s significant criminal history, and failing to disclose a February 2007 criminal asset freeze against him in England; (4) lying about how the hedge fund planned to address certain material risks and failing to disclose others; and (5) misstating the nature of the hedge fund’s assets and its investment process.

Notice two things about this case.  First, Lydia was registered with the SEC as an investment adviser.  Under our disclosure-based regulatory system, it is shockingly easy to become registered as an investment adviser.  Nonetheless, investors seem to give great weight to that registration.  Do not make that mistake. 

Finally, notice the attention to detail.  The defendants invented phony business partners to make themselves look more legitimate.  Do not think that that level of preparation is unusual.  This case is not even average on that score.  Scamsters will create out of thin air anything they believe will lend credibility to their scam.  Some have created phony accounting and auditing firms.  Others create phony educational or professional credentials.  Still others claim to have hired well-respected and well-known attorneys or accountants.  Financial scamsters are at least as good at their job as you are at yours.  They pay attention to it the way any reasonable adult pays attention to his or her livelihood. 

Around the globe at this moment there are millions of people - well-educated and skeptical people - who thought that they had the discernment and knowledge to recognize a scam, and are now living without the nest eggs it took them a lifetime to accumulate.  Do not make the same mistake.  Ask someone who has swum in an ocean of financial scams for his opinion before you invest even a dime of your nest egg.