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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…)

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…)

It Isn’t a Fair Fight

Our brains are wired such that the thought doesn’t occur to us.

We never think that the very impressive man or woman describing a promising investment is really an investment criminal trying to steal our assets. Our brains are wired such that the thought doesn’t occur to us. But, even if you are fully aware of the very real danger from folks who don’t “seem” dangerous at all, you are prone to believe that the battle is a game of one-on-one; that you’d never get more than one person to agree to be part of something so dastardly.  Unfortunately, history has shown us otherwise, as has a recent story arising from the biggest investment fraud in history. According to a press release from the SEC: (more…)

Step Up, and Stop Blaming the Cops

Consider yourself deputized.

Folks often ask me where the regulators are when Ponzi schemes are swallowing nest eggs and pension assets. The question reveals a misunderstanding about the limits of regulatory power. The SEC and other securities regulators would love to be able to shut down such scams before they’ve defrauded the first investor, but they have neither the staff nor the resources to do so. Human error, like that involved in the SEC’s miss of Madoff, is extremely rare at the Commission. Those once-in-a-generation mistakes aside, if the SEC knows about an operating scam, it will shut it down quickly. (more…)

Investors in Northern Ireland Fear Ponzi Losses

Americans alone lose more than $40 billion each year, the equivalent of one Madoff-sized mega-fraud every single year.

According to the Belfast Times, investors in County Donegal and surrounding areas of Northern Ireland may have lost as much as €20 million to a Ponzi scheme. Though the Times does not identify the possible scamster, they do report that he has left the country. According to the story: (more…)

Teacher’s Union Case Shows Why Institutional Investors Need a New Model of Due Diligence

Investment professionals have experience evaluating the profitability of investments, but almost no experience recognizing a fraud.

According to a lawsuit filed by the National Education Association of New Mexico, New Mexico’s main teachers union, registered investment adviser Austin Capital Management, failed to do adequate due diligence before investing $186 million of its clients’ money with Bernard Madoff. According to the Sante Fe New Mexican: (more…)

DOL Suit Against Investment Advisers Highlights Risk to Pension Funds

This lawsuit is good news. It highlights the risks that pension funds and other institutional investors take in relying upon ‘industry standard’ due diligence rather than specialized fraud prevention due diligence.

The U.S. Department of Labor (DOL) has filed suit against four registered investment advisers (RIAs) to pension funds for violation of the Employee Retirement Income Security Act (ERISA) which sets standards for those entrusted with your retirement contributions.  According to the DOL, Beacon Associates Management, Andover Associates Management, Ivy Asset Management, and J.P. Jeanneret Associates violated ERISA when they recommended that their pension fund clients invest in Bernie Madoff’s fraudulent funds. (more…)

Ponzi Schemes Surge Down Under

A better restatement of a widely known axiom is, “If it seems too good to be true, you are talking to an amateur scam artist.”

For the past two years, Investor’s Watchdog has been warning that there is tsunami of investment fraud breaking over the world.  We call it the Worldwide Scamdemic.  Officials in Australia are warning citizens that they are living under the shadow of that wave.  According to the International Business Times: (more…)

SEC Takes Emergency Action to Shut Down Alleged Oil and Gas Fraud

Oil and gas frauds will never fade. They’ve proven too good a vehicle for separating people from their life savings.

The U.S. Securities and Exchange Commission (“SEC’) has charged Houston resident Jon C. Ginder (“Ginder”) and two related companies, Northamerican Energy Group, Inc. (“NEG”) and Northamerican Energy Group Corp. (NEGC”), with securities fraud.  Specifically, the SEC claims that the defendants fraudulently raised approximately $3.5 million from about 50 investors between February 2008 and May 2010, The SEC’s press release reads in part: (more…)

Financial Reform Bill Does Not Protect Against the Biggest Dangers To Your Nest Egg

A fiduciary standard will not make brokers more responsible. The modus operandi of the securities industry has always been to stretch and, where necessary, break the rules as long as the penalties that follow do not exceed the profits that the rule violations generate.

Back in January 2008 the SEC issued a report on a study it had commissioned from the RAND Corporation.  The report provided insight into what investors know about the securities industry and how they choose financial professionals to help them shepherd their nest eggs.  One of the most startling conclusions in that report is that most investors do not know the difference between a stockbroker and a registered investment adviser (RIA).  The difference - and it is a big one - has been that RIAs are required to act in their clients’ best interests and disclose all potential conflicts of interest, while stockbrokers have been able to hide conflicts of interest and operate in their own best interests as long as they can argue that each trade is “suitable” for the customer.   (more…)

Why Pension Funds and Endowments Invest in Ponzi Schemes

Pension funds and endowments must begin separating the task of recommending what investments they should buy from the task of ensuring that they do not fall into a fraud.

In the wake of the Madoff scandal and the flood of Ponzi schemes that followed, we learned that several of the public pension funds and college endowments that lost money to those schemes had been advised to buy them by consultants employed specifically to help select safe investments.  Believing that they had taken sufficient precautions to protect the billions of dollars under their care, these pension funds and endowments followed the recommendations of their consultants only to find that they had been led into frauds. (more…)

Another Alleged Scam Using Phony Account Statements

Be careful, though, of reading too much into registration. Some very dangerous financial predators are registered as brokers and investment advisers. Registration is no mark of trustworthiness.

The U.S. Securities and Exchange Commission (SEC) has charged Martin T. Wegener (Wegener) of Grand Rapids, Michigan, and his companies, Wealth Resources, Inc. and Wealth Resources, LLC (collectively, Wealth Resources), with defrauding at least twenty people out of at $6.5 million.  According to the SEC, Wegener was not registered as a broker or investment adviser, but nonetheless told his victims that he would invest their securities through Wealth Resources.  The SEC’s press release about the case reads, in part: (more…)

Investor’s Watchdog Saves Client From Alleged $53 Million Ponzi Scheme

This week, the U.S. Securities and Exchange Commission (SEC) validated IW’s safety rating when it charged Jennings with operating a $53 million Ponzi scheme.

In April 2009, an investor asked Investor’s Watchdog for a BrokerSnapshot® report on Matthew Jennings of Westmoore Securities.  The most valuable thing about a BrokerSnapshot report is the Broker Safety Rating, which reflects the opinion of an SEC-trained investigator.  On the IW scale, from 40 to 80, a score of 40 reflects an opinion that the person under investigation likely is engaged in fraudulent or reckless behavior.  Investor’s Watchdog rated Mr. Jennings a 40. (more…)

Hedge Funds - If You’re Going to Skip an Investigation, Take Your Nest Egg to Vegas Instead; You’ll Have More Fun Losing It

The only way to make any hedge fund investment a tolerable risk is to get a professional investigation on the fund and the manager.

From north of the border comes a case that illustrates the importance of getting a professional investigation of any hedge fund in which you intend to invest.  The Ontario Securities Commission (“OSC”) is pursuing a case against Otto Spork (“Spork”), Sextant Capital Management Inc., and Sextant Strategic Opportunities Hedge Fund, claiming that Stork overstated the value of speculative investments he held in those hedge funds and that he took higher management and performance fees based on those allegedly false higher valuations.  While the Chief Compliance Officer of Sextant Capital has settled with the OSC, Mr. Spork is contesting the charges.

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Alleged ‘Convertible Bond’ Scam Raises $10 Million

Investment seminars have proven to be a reliable tool for selling phony investments. You can imagine why.

Think about a financial scam from the perspective of the scam artist.  You know that you are not going to generate any profits.  You know that you are going to spend the victims’ money on houses, cars, vacations, and a luxury box at your local major league stadium.  You might also have to spend some of the money to maintain the illusion that your scam is legitimate.  You will send some to investors, some to the landlord of the space you rent and equip to look like an operating office, some for design of a first-class website, and some for impressive stationary, business cards, and antique furniture for the office. (more…)

Clark Kent Character Takes Investor Nest Eggs to Vegas

The mild-mannered accountant or broker who has always been so responsive might be spending your nest egg on the weekends.

Paul Elias of the Associated Press has written the story of a Clark Kent character who turned into a high-rolling Vegas Superman on the weekends, spending the money of the elderly accounting clients who believed in his Clark Kent alter ego.  As Elias tells it, “Roberto  Heckscher was a socially awkward accountant who drove a Saturn and kept an office above a flower shop in a quiet neighborhood. On the weekends, he transformed into a high-rolling casino “whale” who enjoyed VIP treatment worthy of a sheik.”

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SEC Shuts Down Investment That Claimed Ties to Belgian Nobility

You put yourself at serious risk by believing that the person with designs on your nest egg will come off like a carnival huckster or a slick politician. He won’t. He will look and act much more like the neighbor with whom you most enjoy spending time.

The U.S. Securities and Exchange Commission (“SEC”) has charged New York-based Chimay Capital Management, Inc. (“Chimay Capital”) and its chairman, Guy Albert de Chimay, with defrauding an unknown number of investors out of more than $6 million by claiming to operate an investment in partnership with Belgian royalty.  Specifically, the SEC alleges that: (more…)

It is Not Safe to Follow the Fish When Choosing Investments

A con man will . . . slap a fish magnet on the back of his car, tune his radio to a Christian station, and wear a cross around his neck; all in hopes that believers will forsake a thorough investigation in favor of a “he’s a Christian; he must be honest,” short-cut.

The U.S. Securities and Exchange Commission has filed an emergency enforcement case to shut down what it alleges to be an affinity fraud centered around investments in an oil and gas company, Petrogas Overseas Trading, LP (“Petrogas”).  The SEC charged both Petrogas and its owner Samuel O. LeMaire with raising $2.3 million by appealing to the Christian faith of potential investors. (more…)

Accused Fugitive Financial Scamster Arrested in San Francisco

May found the climate too hot once federal investigators began looking into his operation. He was on the run for three months before the U.S. Marshal’s service caught up to him in San Francisco, where he was living under an assumed name.

Back in March we posted about the the U.S. Securities and Exchange Commission’s (“SEC”) enforcement case against Alan May and his company, Prosper Oil and Gas.  That operation was based in Texas, but May found the climate there too hot once federal investigators began looking into his operation.  He was on the run for three months before the U.S. Marshal’s service caught up to him in San Francisco, where he was living under an assumed name.  True to form for financial scamsters, though, May rented an expensive apartment and spent money in a way that drew attention, according to the SFWeekly Blog. (more…)

Another Reason to Avoid Any Investment You Hear About at Church

The leaders of churches, whether clergy or lay leaders, are usually successful, smart, and genuinely devoted to the mission of the community of faith. Unfortunately, they often make the mistake of believing that their business acumen qualifies them to discern whether a proposed investment is legitimate. It does not.

We have been covering the U.S. Securities and Exchange Commission’s (“SEC”) case against Financial Resources Mortgage (“FRM”), Scott Farah, and Donald Dodge, in which the SEC charges the defendants with operating a Ponzi scheme that robbed at least 150 investors of more than $20 million.  Many members of the Center Harbor Christian Church lost money to FRM.  Defendant Scott Farah is the former treasurer of the church.  His father, Robert Farah, is the founder and lead pastor.  We have devoted three posts to this case because it highlights the dangers of investing in anything that you hear about at church or temple. (more…)

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