Poland Joins The Club

Institutional investors and very wealthy individuals are just as susceptible to this kind of fraud as first time investors.

It’s the rare country that hasn’t seen at least one large investment fraud in the headlines over the past few years. We’ve written about most of them. Today’s story welcomes another country into that sad club. According to newser.com: (more…)

SEC Alleges Cross-Border Fraud By Texas RIA

All RIAs are not created equal.

Last week we posted on a case in which U.S. fraudsters targeted elderly investors in the U.K.  Today brings a story about a U.S. registered investment adviser (RIA) who allegedly defrauded a client in Mexico. According to the SEC’s press release: (more…)

Before The Deluge

Unless the RIA tells you that you need an independent review of whether the fund investment is best for you, you should stay away from the fund and find a new RIA.

“The vigilant investor pays attention to whether an RIA is also managing a hedge fund or some other investment pool.” — The Vigilant Investor, p. 214

You might want to take a look around; things are about to change. We’ve been predicting a tsunami of investment fraud that will cover the entire investing world and make Bernie Madoff seem like a teenaged shoplifter. That wall of fraud is here. According to a press release from the SEC: (more…)

Anglican Bishop On Trial in Ponzi Case

An impressive resume says very little about whether a fallible human will make ethical decisions under pressure.

Pretend that I’m an investment adviser. You come into my office and I tell you that I’ve just met with a man who has an investment that seems perfect for you. It involves making loans to businesses at very high interest rates. The investment has a track record of success. Now, consider whether the following facts would add credibility to the investment: (1) the promoter of the investment is a licensed attorney, and (2) the promoter of the investment is also an Anglican Bishop. Those facts convinced many investors to invest in an investment called the British Lending Program, which was offered by Missouri attorney and Anglican Bishop Martin Sigillito. He is on trial now in St. Louis. According to stltoday.com: (more…)

The Storm is Here

You can do something about this crisis.

“Your parents’ generation needs you.” — The Vigilant Investor, p. 238.

For three years now, I’ve been warning that the coming tsunami of investment fraud will make us forget Bernie Madoff. While we haven’t yet forgotten that name, the aforementioned storm is here. One of the things that makes this storm especially dangerous is that we all won’t experience it at the same time. It isn’t a single or small group of frauds that will engulf every one of us. Instead, it is thousands of cells of the same storm system that will roll across the landscape (the entire investing world) for at least the next fifteen years. One hundred victims in Denver may never know that their storm cell is in anyway connected to one that will wipe out 300 senior citizens in the Twin Cities, or another that destroys 500 nest eggs in Boston. (more…)

The Insurance Company Won’t Pay Your Fraud Claim

The promise that an insurance company will pay in the event of fraud is a 100 percent accurate tip-off to a fraud.

I am serving as an expert witness for an attorney who practices on both sides of the Atlantic. He is well acquainted with the epidemic of financial fraud that has engulfed all of the UK as well as the United States. During our last meeting he shared with me a tactic that he has seen UK fraudsters use, and he granted his permission for me to share with you. (more…)

Japanese Adviser a Far East Madoff?

Never believe that your adviser’s ability to find legitimate investments makes him or her competent to spot a cleverly disguised fraud.

Media outlets all over the world are abuzz with news that a Japanese investment adviser may be the Far East version of Bernie Madoff. Preying on its pension fund clients, AIJ Investment Advisor’s Co. allegedly ran a $2.3 billion Ponzi scheme showing phony returns of between five and 10 percent annually. According to the Wall Street Journal: (more…)

A Course at College, But Not a College Course

Get advice from someone who has no financial interest in managing your money before you venture into the world where everyone wants a piece.

One of my partners recently received a very interesting brochure in the mail. It was an invitation to enroll in an “Educational Course for Adults — Ages 50 to 70.” The brochure states that the course is being conducted at Oglethorpe University, a well respected institution of higher learning here in Atlanta. In parenthesis (and smaller font), they disclose that the course is not affiliated with the university. It seems that the course presenters are only renting out a classroom. The brochure is eight pages long and includes a Course Outline and a Course Preview. They plan to cover “Retirement Needs and Expenses,” “Retirement Roadblocks and Mistakes,” and many other areas of interest to retirees and those approaching retirement. The instructors represent that they have earned the Certified Financial Planners designation. They are affiliated with LPL Financial, which is the largest independent broker-dealer in the U.S..  (more…)

Technology: Every Scamster’s Friend

Your financial future will come down to a single moment in which you either write the fateful check that makes you a pauper or recognize a cleverly disguised scam for what it is.

Forgery is centuries old and will always be with us. In the investment context, phony account statements, order tickets, trade confirmations, analyst reports, invoices, contracts, and financial statements are commonplace. In my time at the SEC, a forger’s tools were scissors, razor blades, tape, glue, typewriters, and photocopy machines. A keen eye looking through a magnifying glass could usually find evidence of the forgery. Not so these days. Technology has made creating passable forgeries easy. A criminal case out of New Jersey shows that the forger’s toolbox looks nothing like what it did even fifteen years ago. According to OrangePatch: (more…)

The Post-Madoff Tsunami Pushes Further Inland

On the day Madoff turned himself in, dozens of investment frauds began.

On a publicity swing for The Vigilant Investor a couple of months ago, I stopped by the CBS studios in New York for an interview with personal financial reporter Jack Otter. After the main interview, we chatted about trends in investment fraud and I told Jack what I’ve repeated here so often: promissory note scams are epidemic. Jack asked if I could stick around for another short interview about promissory notes. Here’s that interview. (more…)

Three Dangerous Words

Because we, understandably, believe that success is good, we too often believe that the successful are good.

The first words of the Washington Post’s recent story about a scam that took $135 million from 150, mostly elderly, investors in south Florida appear in many Ponzi stories. Those words help explain why so many continue to lose so much to investment fraud. Pay attention to those first three words as you read the story: (more…)

The Congruence Bias Strikes Again

Those attempts at investigation likely only set the scamsters’ hooks deeper.

I don’t know for certain whether any of the investors in the promissory notes allegedly sold by Kevin J. Wilcox, Jennifer E. Thoennes, and Eric R. Nelson undertook their own pre-investment investigation of the opportunity. But, if the SEC’s allegations against the three are correct, I know that those attempts at investigation likely only set the alleged scamsters’ hooks deeper. The culprit is a cognitive bias called the “congruence bias.” The CIA sums up the congruence bias this way: “People do not naturally seek disconfirming evidence, and when such evidence is received it tends to be discounted.” Let’s first look closer at the alleged scam.  Then, we’ll break down what role the congruence bias likely played. According to the SEC’s press release: (more…)

Trial Set for Accused Montana Madoff

I don’t care if your 90-year-old grandmother is the salesperson.

Polson, Montana sits at the southern end of Flathead Lake in northwestern Montana. The town is known for cherry orchards and the lake, which is the largest natural freshwater lake in the western U.S..  If federal prosecutors have their way, it’ll soon be known as home to the biggest Ponzi scheme in Montana history. According to the Lake County Leader: (more…)

Another Gust in the Post-Madoff Scam Storm

If your explanation for why so many lose so much to investment fraud has anything to do with gullibility, greed, intelligence (or lack thereof), emotion, or sophistication, you are way off base.

When the financial crisis of 2008 flushed scores of active Ponzi schemes out into the open, some people hoped that the exposure of so many schemes in such a short period would have a chilling effect on the creation of new scams and would keep a lid on just how big any new scam could get. The optimists figured that would-be scamsters would be deterred by images of once proud “financial wizards” doing a perp walk to the courthouse.  They hoped that investors — afraid of running into the next Bernie Madoff — would be more on their guard against scams.  Perhaps harkening back to one of the great bumper stickers of the 1960’s — “What if they threw a war and nobody came?” — they envisioned Ponzi scamsters unable to convince even a single victim to turn over his hard earned savings. Beautiful things to think about, but hopelessly naive. (more…)

“They Got A Name For People Like You, HI.”

Your first clue should be that he looks like someone who would never be involved in anything dishonest.

Parole Board 1:  ”That name is ‘recidivism.’”

Parole Board 2:  ”Repeat offender!”

Parole Board 1:  ”Not a very pretty name is it, HI?”

HI:  ”No sir, that’s one bonehead name, but that ain’t me no more.”

Parole Board 1:  ”You aren’t just telling us what we want to hear, are you?”

HI:  ”No sir. No way.”

Parole Board 2:  ”‘Cause we just want to hear the truth.”

HI:  ”Well, then I guess I am telling you what you want to hear.”

Parole Board 1:  ”Boy, didn’t we just tell you not to do that?”

HI:  ”Yessir.”

Parole Board 1:  ”Okay then.”

Please forgive my homage to the Coen Brothers’ classic, Raising Arizona. But, it fits perfectly with today’s post. This is the second post this week in which the topic has been the type of investment scamster that I describe in The Vigilant Investor as “The Career Criminal.” According to Courthousenews.com: (more…)

Guess What He’ll Do In Prison

On average, career criminals engage in three or four successful scams for every scam that results in jail time.

You can slice and dice the characters who separate investors from their life savings any number of ways. In The Vigilant Investor, we group them into five categories.  Prosecutors in California have secured a conviction against a man who’d fit squarely in the group we call “The Career Criminal.” According the Simi Valley Acorn: (more…)

Read This Book

This book will help you on your path to becoming the kind of vigilant investor who can survive the tsunami of investment fraud that has begun to break over the investing public, and you’ll enjoy the education.

The Wizard of Lies: Bernie Madoff and the Death of Trust by Diana B. Henriques, Times Books (New York) 2011.

Because I hunt investment fraudsters for a living and give speeches on how to spot them, Diana Henriques had me at “Bernie.” I intended to read The Wizard of Lies the way you read trade journals, to remain professionally competent. In relegating it to my Must Read for Work list, I was selling it, and her, so short that I feel like I owe her an apology. I take a break from our usual coverage of breaking investment scams to recommend this book because otherwise I’d owe all of you an apology. (more…)

YouTube Used in Alleged Investment Scam

Those are the scams that make up the current fraud crisis, an epidemic of fraud so bad that it may make us forget Bernie Madoff.

It was inevitable, I supposed. Eventually every new media space is infiltrated by fraudsters. That’s what the Texas State Securities Board is alleging happened when James Elton Warr and his company, Warr Investment Group, used YouTube and Internet advertising to attract investors to an investment that promised to return 8 percent per year. According to  PR-Canada.net: (more…)

The Silver Lining on a Very Dark Cloud

The Madoff fiasco has put the SEC in a better position to address a tidal wave of fraud like nothing the agency or the investing public has ever seen.

Who knows why things happen the way they do? A Christian will quote Romans 8:28 and tell you that, “In all things God works for the good of those who love Him, who have been called according to his purpose.”  Of course, “the good” might involve quite a lot of misery in this fallen world. Contrary to what some popular televangelists preach, it doesn’t appear that God is particularly concerned with your material comfort in this world. (Most of the world has just finished celebrating the Incarnation of God in the form of a baby born in straw poverty). An atheist will respond that things work out the way they do because of a random collocation of atoms; that chaos rules and that it is only a quirk of our brain that we seek to draw meaning from random cause and effect. Whichever view you hold, you have to admit the cause and effect between Bernie Madoff’s record setting Ponzi scheme and the SEC’s institution of new methods for tracking down hedge fund fraud. The Wall Street Journal covered those new methods this week. (more…)

Canada Needs An SEC

Mogilevich, without ever leaving the comfort of his home in Russia, orchestrated a massive pump and dump scam that made the Toronto Stock Exchange an unwitting accomplice.

In the U.S. we have no fewer than 51 securities regulators: the SEC, of course, and a counterpart for each state. Did you know that Canada has no counterpart to the SEC? Each province and territory has its own securities regulator, but there is no national regulator to help with the crush of securities law violations, including fraud, that plagues every country. Not only is Canada not exempt from the global crisis of investment fraud, it has been a favorite launching pad for some of the most notorious stock scams in recent memory. I talk about one of them in Chapter 4 of The Vigilant Investor: (more…)

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