Bad guys like to run. At the SEC, we dealt often with the threat that promoters of fraudulent scams would flee overseas before we could take steps to keep them in the country. In many emergency actions to shut down an ongoing fraud, the SEC asks that a federal judge to order the promoter to turn over his passport. Bad guys run this way, too. Former director of The Streetwise Groups, Kovelan Bangaru, has been in custody in the United States since his arrest in April. The arrest was on the basis of 16 warrants obtained by the Australian Securities and Investments Commission (ASIC).
His scheme has been news in Australia for years. But Americans are only now learning about it.
Bangaru rose rapidly without trace. One day no one had heard of him. The next, August 9, 2003, there he is in the papers, the 36-year-old “Streetwise property tycoon” who had just shelled out $7 million for one of Sydney’s most expensive apartments.
In September 2004, his credibility was boosted still further when BRW magazine swallowed the story, failed to do the maths, and put him in its list of Australia’s richest people aged under 40, with a net worth of $31 million. Debts apparently weren’t counted.
Bangaru sold investors what he called a “comprehensive investment strategy” for $495. He recruited well-known cricket stars to endorse his company and staffed his shopping mall kiosks with attractive young salespeople. Once investors signed on for the strategy, he urged them to invest the equity in their homes. The Streetwise Group collapsed in 2005, owing more than $16 million to unsecured creditors.
Notice three things about this case. First, Bangaru was ostentatiously successful. Scam artists often hide in plain site. It works. Nothing sells like success. A recent case from South Florida proves the point. The defendant hosted not one, but two financial radio shows. His visibility and popularity brought him hundreds of clients. Please remember that people who have money have not necessarily come by it honestly.
Second, notice that Bangaru was the focus of regulatory scrutiny for more than five years before he fled Australia. Australian investors are taking the Australian Securities Commission to task for not shutting down Bangaru’s operation faster.
In the U.S. we have an SEC that hires and trains the best examiners in the business. We do not hear stories of examiners failing to discover fraudulent conduct. If you are considering investing in a company headquartered in another company, therefore, remember that the SEC’s examiners have not been there.
Finally, remember that talk is cheap. The Streetwise Group had a motto, featured prominently in its marketing materials: “Flying the flag of honest integrity and disclosure”.
