SEC Tags Officials at Chinese Company with Market Manipulation

And vigilant investors strive to see things as they are, rather than as they would like them to be.

Gather round vigilant investors and pretend that you are the head of a public company. You’ve just gotten news from a potential source of much needed financing that you cannot have the loan you seek because the company’s stock does not trade actively enough (on the average day, only about 18,000 shares change hands).  The lender is concerned that the relatively low volume of trading means that not many people are interested in the company. The lender tells you that if the stock traded at more than 100,000 shares per day, you could have the loan. Without that loan, you are going to have to shutter the company. What do you do? (more…)

The FBI is On the Case, But It Isn’t Enough

Just like every investor thinks he’s too smart to fall for a fraud, every scam artist thinks he’s too crafty to be caught.

The investment cops are doing all that they can. The FBI devotes substantial resources to white collar criminal investigations, including investment fraud. The Department of Justice has an entire division of attorneys who prosecute white collar criminals day in and day out. The Feds take investment fraud seriously. During a recent trip to Miami, FBI Director Robert Mueller warned his audience that south Florida is a hotbed for the kind of scams that the FBI investigates. Covering Mueller’s visit, South Florida Business Journal wrote: (more…)

Phantom Auditors and the Magic Word

The magic word is “audit.”

“You might find out that the auditor has never heard of the [company].” — The Vigilant Investor, p. 45

If you had to name one word that accounts for more investment fraud than any other word, what would it be? You might think that “guarantee” would be a strong contender. It certainly would crack the top five, but it can’t claim the top spot. I would say the same about “government-backed” and “patented.” But, in my more than two decades swimming in an ocean of investment fraud, the word that stands out is “audit.” Savvy, sophisticated people will not part with their money unless it can be tracked by an auditor who will raise an alarm should any dollar wander astray. And every investor, sophisticated or not, feels safer knowing that an auditor will be testing the company’s financial representations.


Seniors Moved Into the Fox’s Lair

Investigate the owners/operators of the place as you would investigate a stockbroker or investment adviser.

“While people 60 and above make up 15 percent of the population, they account for 30 percent of fraud victims.” — The Vigilant Investor, p. 228

What job would put you in the perfect position to swindle elderly people? I can’t think of one better than “retirement home operator.” Police in New Mexico believe that they have caught a swindler using that very position to steal from the elderly residents. According to kasa.com: (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…)

Judge Blows the Whistle on His Dad’s Ponzi Scheme

It is rare indeed to find people who don’t instinctively repeat the call of the selfish cynic: “I don’t want to get involved.”

Because I practice law for a living, friends who receive jury summonses or subpoenas sometimes call me for advice on how to get out of jury duty or appearing as a witness in a court proceeding. They always get more than they bargained for, a lecture on the price of freedom and the duties of citizenship. Most take it well. I remember one in particular who, despite my lecture, succeeded in slipping out of a trial subpoena that called for her testimony (can’t remember what excuse she gave). The prosecutor dismissed the charges against the defendant for lack of evidence, and my friend was irate at the miscarriage of justice. How she could be angry with the prosecutor when the witnesses (including her) weaseled out of showing up is something that I chalk up to our human ability to compartmentalize. (more…)

Acrimony in Public Debate Fuels Ponzi Scheme

Wilson rode the wave of national cynicism to a very nice lifestyle on other peoples’ money.

“Affinity fraudsters use their own membership in a distinct group to build the trust that is essential to the success of the scheme.” — The Vigilant Investor, p. 98

I know that “Politician Accused of Unethical Behavior” isn’t exactly a “man bites dog” story, but when the politician is accused of running a Ponzi scheme the story sets up a good examination of why we so often fall for investment fraud. According to IndependentMail.com: (more…)

Another Recidivist Headed Back to the Gray Bar Hotel

With the impending passage of the JOBS Act, we can expect a spike of fraud led by career criminals.

“Professional scam artists put in long hours of planning and preparation before they talk to their first mark.” — The Vigilant Investor, p. 39

With the impending passage of the JOBS Act, we can expect a spike of fraud led by career criminals. These are the guys who know the law well enough to be dangerous and will spin the text of the new law into scams that will take tens of billions, if not hundreds of billions, of dollars from unsuspecting investors this year and every year for the next generation. A recent case in Colorado gives us a peek into the lives of these characters. According to Coloradoan.com: (more…)

Hedge Fund Manager/CNBC Expert Back from Time on the Lam

That’s the formula that creates — by my esitmation — more than half of all Ponzi schemes.

“Homer was on the lam for 10 years but was finally arrested by Interpol agents in Dubai.” — The Vigilant Investor, p. 54

How many times have I heard it? The guy has his own radio show! He is an expert commentator on television! He must know what he’s talking about. As if there is moral pixie dust in the studio makeup applied before such appearances. Recently, prosecutors exposed the fallacy of that line of reasoning. According to The Province:


JOBS Act Boosts Employment in Financial Fraud Sector

This law is going to create an explosion of fraud the debris from which will land in the living rooms of tens of millions of American investors.

Both the House and the Senate have passed similar versions of the Jumpstart our Business Startups (JOBS) Act, and the White House has asked Congress to send it to the President toot sweet.  SEC Chairman Mary Schapiro and the North American Securities Administrators Association (NASAA) have done their level best to tell Congress why the bill represents a grave threat to investors, but, you see, the thing is called the “JOBS” Act, and politicians have so little regard for the intelligence of the electorate that they believe they have to vote for something with “jobs” in the title or have it held against them in the next election. This Act could legalize cannibalism and still pass with that name. (more…)

Give Up On Congress

I shudder to think of the size of the national catastrophe that could convince these bullies and mean girls to band together to drop their middle high machinations and actually do us some good.

For decades, Congress has worked to stack the deck against investors. At every opportunity, they’ve made it harder for defrauded investors to recover from corporations, including those that so recently took the world economy to the brink of a second great depression. Most of the people who smile, shake your hand, kiss your baby, and ask for your vote are beholden to those rats, because the rats give them much more money than you ever could. That’s why we’ve told you since day one that you cannot count on the government to protect you from those rodents in tailored suits. You must learn how to do your own due diligence, because, if you lose your money, justice is hard to come by thanks to Congress. (more…)

FCPA Case Reveals the Central Equation

The fines that big brokerage firms pay for mistreating their customers rarely exceed their annual expenditures on office supplies.

Among the statutes that the SEC enforces is the Foreign Corrupt Practices Act (FCPA), which makes it illegal for American companies to bribe foreign officials. There is no law more unpopular with U.S. companies who make money overseas. That’s because bribery is an accepted and expected part of business deals in some parts of the world, and some of the international companies against whom the U.S. companies compete may not be prohibited from offering bribes by the laws of their own country. (more…)

For the Love of God, Do Not Let Your Broker Choose Your Investment Objectives!

You will see that paperwork again when the broker has drained your account through horribly risky investments that paid the broker huge commissions.

“A broker might change your account objectives without telling you because this makes it easier for her to make more and riskier trades in your account . . .” — The Vigilant Investor, p. 168

Yesterday, I was in Chattanooga meeting with a prospective client whose broker began the relationship with the well worn words, “just sign here.” I’ve seen it more times than I can count. Maybe that’s how your relationship with your broker began. You received the account opening paperwork, which reflects your account objectives and your risk tolerance. You gave it a glance and saw that the broker has indicated that your objective is “speculation” and your risk tolerance is “high.” You tell the broker that you want to be safe with the money, that you do not want to speculate. He or she says that the paperwork is just a formality and that filling it out this way will save innumerable hassles down the road. “Just sign where indicated,” the broker says. You do as instructed and send in the paperwork. You will see it again. (more…)

Selling Collateral On the Sly

Scamsters do not process information the way you do.

“You are safe from Career Criminals only when they are in prison, and even then you are at risk from the day of their release.” — The Vigilant Investor, p. 40

Corporate officers sometimes use their shares of company stock as collateral for loans. When they pay back the loans, they expect to receive back the stock. The SEC has filed charges in a case that describes an allegedly simple scam in which the supposed lenders sold the executive’s stock immediately upon receiving it rather than holding it as collateral. According to the SEC, the defendants even used the proceeds from the surreptitious sale of the stock to generate the money that they loaned to the unsuspecting corporate officers. According to the SEC’s press release: (more…)

Salespeople to the Rescue!

If salespeople step up to their duty to perform due diligence, the investing landscape will be much safer.

I got a voicemail yesterday from a man who knows one of the defendants in the SEC case that I wrote about on October 22, 2011. (And They’ll Start Another One Tomorrow). This fellow made a valid point, that oftentimes salespeople get into trouble by agreeing to sell a product without doing sufficient due diligence. They come into what looks like a good job, perhaps without any actual knowledge of any wrongdoing, but wind up holding the bag when the SEC reveals the enterprise as a securities fraud. The take away for anyone who sells investments for a living is that you must perform your own investigation of any investment before you agree to sell it. That concept is firmly entrenched in the laws and rules that govern the behavior of stockbrokers and investment advisers. (more…)

Brokers Exploit Facebook Mania

Never let your desire to own a piece of a particular company blind you to what the middle man charges for the privilege.

“The vigilant investor knows that charisma is no predictor of character.” — The Vigilant Investor, p. 233

Ten years ago, no one had a Facebook account. Now, Facebook is an integral part of every company’s marketing strategy. The ubiquity of the company leads everyone to be excited about the prospects of profit on Facebook stock. Brokers know this. Some, it seems, are willing to exploit that excitement. According to a recent SEC press release: (more…)

Afghan Murder Suspect a Bad Broker

Until you understand why you’ll be so stubbornly reluctant, a book full of warnings from investor protection experts will not drag you to the phone.

“Brokers know that a customer who is in declining health is unlikely to notice unauthorized trading.”  - The Vigilant Investor, p. 234

Army Staff Sergeant Robert Bales, accused of massacring Afghan women and children earlier this month, used to be a stockbroker. He worked for Ohio-based brokerage firm MPI Financial and left the industry on the heels of a finding that he abused at least one of his customers, draining what once was an $850,000 retirement account. According to a story from ABC News: (more…)

Accused Oregon Con Woman Charged

Learn the approaches, and you’ll learn the escape.

“Those of us in the investor protection business know that Madoff’s ’sophisticated’ victims were actually low-hanging fruit, easy prey, the $100 question on Who Wants to Be a Millionaire?” — The Vigilant Investor, p. 18

Some financial scams are big; think Bernie Madoff or Alan Stanford. They are headquartered in New York, Ft. Worth, or other cities that you’ve heard of. Others are small. They happen in small town America. But the victims of small scams wind up just as desperate as the victims of record-breaking frauds. Like those who invested with a scamster headquartered in a steel and glass office tower, those who lose their nest egg to a scamster operating out of a local real estate or insurance office may wind up living with their adult children or in a Medicaid nursing home, instead of independently. Part of our mission at Investor’s Watchblog is to bring you the stories of the scams that don’t make the Wall Street Journal.

Ashland, Oregon is a town of about 20,000 people. It sits along Interstate 5 near the California border. According to prosecutors, it was the scene of a crime that has deprived several investors of a combined $1.6 million. According to The Ashland Daily Times: (more…)

Two Feathers Pleads Guilty to International Con

The more investment scams that you’ve read about, the easier it will be to protect yourself.

“Like stand-up comedians, prime bank scamsters change their material to appeal to those who may have seen the act before.”  The Vigilant Investor, p. 61.

What does Hamilton, Montana have in common with Hamilton, Bermuda? Both were cites of investment swindles run by Dan Two Feathers. Two Feathers admitted his crimes in federal court in response to an indictment charging him with several counts of conspiracy and fraud. According to KAJ18.com: (more…)

Another Recidivist Headed for a Time Out

Be suspicious of the financial adviser who lives like his or her wealthiest clients.

“You are safe from career criminals only when they are in prison, and even then you are at risk from the day of their release.” - The Vigilant Investor, p. 40.

Our last post was about a recidivist investment fraudster accused of being “at it again.” We opined that investment fraudsters spend their imprisonment thinking up the scams that they’ll launch once they’ve served their sentence. A story from California bears that out. According to  The Downey Patriot: (more…)

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