In The Vigilant Investor, I tell the story of Simeon Mogilevich who masterminded an enormous pump and dump scam in the United States without ever leaving the comfort of his various eastern European homes. In a recent filming of an Investor’s Watchdog University video, I mentioned the impact of the Russian mob on U.S. securities markets. Now comes word that the FBI has identified another scam run by Russian crime figures. According to Bloomberg BusinessWeek: (more…)
Criminals who are bright enough to stay safe in the arms of mother Russia can breathe easy even while their faces grace the FBI’s Ten Most Wanted list.
On January 26, 2012,
in Hedge Funds, Missouri, Missouri, Ponzi schemes, SEC, Scams, Securities Industry (general), The Vigilant Investor,
by IW Dog
Those who ask the SEC to answer for the epidemic of investment fraud that has already begun to spread across the investing landscape misunderstand the role of the investment cops.
I have seen it from the inside. When the SEC believes that it has identified an ongoing investment fraud it spares no effort to gather evidence to find out whether those suspicions are correct and, if so, to get into Court seeking an order to shut down the alleged fraud and freeze assets that might otherwise find their way out of the country or into the pockets of people and organizations who have agreed to hold them for the accused. The SEC took such an action last week, halting what it believes to be an ongoing fraud in several St. Louis-based private investment funds. According to the SEC’s press release: (more…)
On January 25, 2012,
in Credit Suisse, Hedge Funds, Securities Industry (general), The Vigilant Investor,
by IW Dog
Too many brokerage firms think of due diligence as just another set of forms to fill out, rather than an opportunity to protect their clients from a guaranteed 100 percent loss.
Today’s edition of the Rap Sheet Review features Credit Suisse. The Financial Industry Regulatory Authority (FINRA), an organization made up of registered broker-dealers (brokerage firms), censured Credit Suisse and fined the firm $350,000 for telling wealthy investors that it performed continuing due diligence on the hedge funds that Credit Suisse recommended. According to FINRA’s press release: (more…)
On January 24, 2012,
in CitiGroup, Municipal Bonds, SEC, Securities Industry (general), The Vigilant Investor,
by IW Dog
Never be naive enough to believe that your well-known brokerage firm is as trustworthy as it appears in TV ads.
I travel the country teaching effective due diligence techniques. At the end of every speech, I take questions. Someone always asks some version of this question: “My money is with fill-in-the-blank-with-name-of-well-known-brokerage-firm, so I don’t have anything to worry about, right?” They couldn’t be more wrong. (more…)
On January 23, 2012,
in SEC, Securities Industry (general), The Vigilant Investor, Variable Annuities,
by IW Dog
They’re just putting different colored paint on a Pinto.
A recent article in Money magazine is the latest in a long line of hoots and cat calls directed against the investment products known as variable annuities. While I am willing to admit that there are certain very limited situations in which the purchase of such a product might be — strictly speaking — suitable, it is also fair to say that no adviser who takes an obligation to act in his or her clients’ best interest seriously would recommend one to a senior citizen. (more…)
On January 20, 2012,
in Aging Parents, Investors at Risk, New Mexico, Scams, Senior Citizens, The Vigilant Investor,
by IW Dog
Let’s hope that the person who sits in the White House is never interested in rolling back investor protection.
Elder financial abuse is rampant. Cases of brokers and investment promoters taking advantage of elderly investors used to make up about 10 percent of my caseload. Now, it’s more like 25 percent. We knew that this was coming, and it’s only going to get worse. Just as a combination of meteorological factors can make the “perfect storm” out at sea, a combination of economic and demographic factors make a perfect storm of investment fraud. I’ve listed those factors elsewhere and don’t have the space to recount them here. So I will mention just a few. (more…)
On January 19, 2012,
in Securities Industry (general), The Vigilant Investor, arbitration,
by IW Dog
At a time in history when investors need access to justice more than ever before, the securities industry keeps the doors of the courthouse closed.
The U.S. Constitution is an amazing document; “the law of the land.” While people point to the U.S. President as our counterpart to the kings and queens of other countries, that’s not accurate. Our king, if we can be said to have one, is the Constitution. Our chief executive swears his allegiance to it upon taking office. It has given us one of the world’s longest surviving republics. The remarkable men who drafted the document enshrined certain rights of individuals in the first ten amendments to the Constitution. Among those fundamentals rights was the right to a jury in civil trials, enshrined in the Seventh Amendment, which provides: (more…)
On January 18, 2012,
in Uncategorized,
by IW Dog
The typical financial criminal falls into the game with a single ethical mistake and often thinks no further ahead than the next lie.
If you ask most people for the characteristics of a typical financial criminal, they might list a flashy lifestyle, a surplus of charisma, and care in stashing millions of dollars in hard-to-reach overseas ratholes to which he can always run and live the life of a Bond villain. While that description fits a certain sub-set of the category, frequent readers of InvestorsWathcblog know that the typical financial criminal falls into the game with a single ethical mistake and often thinks no further ahead than the next lie. At the outset, there is no grand plan, no escape hatch. Just that first lie, which he expects to be able to correct shortly and then lead an exemplary life. But there are thousands of characters who fit the stereotype, guys who could inhabit a Hollywood script. They are fun to write about, and the FBI has caught another one. According to the StopFraud.gov: (more…)
Recommendations of alternative investments can provide a litmus test for whether your broker or adviser is worth keeping
Last week, Page Perry LLC wrote a blog post entitled Nontraded Behringer Harvard Opportunity REIT I Implodes. We have not yet filmed a segment of Investor’s Watchdog University addressing that type of product. But you need to know about the dangers even before we get around to shooting that video. According to the Page Perry post: (more…)
On January 16, 2012,
in Investor Protection, Securities Industry (general), The Vigilant Investor,
by IW Dog
Please don’t make the rookie mistake of thinking that financial predators will somehow miss your elderly parents or grandparents. They won’t.
A few weeks ago, we asked you to send in questions for us to answer in a video series that we’re calling Investor’s Watchdog University. Yesterday we shot the first videos in that series, which should hit YouTube this month. Thereafter, look for a new class session every week. These are short. We aim to give you valuable information without taking too much of your time. You’ll want to watch these and forward them to your friends. I promise that you’ll learn things that you didn’t know before and that you’ll leave this semester better able to protect yourself on a very dangerous investment landscape. (more…)
Your first indication that the company is a fraud should be that it looks perfectly legitimate.
I battle the widespread impression that most investment scams look like the Nigerian email scam that we’re all so familiar with. It seems like half of my job is convincing people that the people who run those scams are the very bottom of the scam artist talent pool, the guys who drank their way through scam school and never graduated. If there were a bell curve of scam artist competency, those characters would be firmly camped on the left margin of the graph. This week, the SEC filed an enforcement action in a case that, if the allegations are true, looks a lot more like the typical investment scam. According to the SEC’s press release: (more…)
On January 12, 2012,
in Uncategorized,
by IW Dog
None of those is inconsistent with stealing your nest egg.
Bill Singer, writing for Forbes, covers the story of a Morgan Stanley broker, Jo Ann Marie Head, who attracted wealthy clients and used their accounts to enrich herself. She churned the accounts, gave her clients phony account balances, and stalled when they requested money that she’d long since lost. Please read the post in its entirety. Especially insightful is Singer’s conclusion in which he writes: (more…)
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…)
On January 10, 2012,
in Illinois, Illinois, Ponzi schemes, Prime Bank Scams, SEC, Scams, The Vigilant Investor,
by IW Dog
Social media multiplies a scamster’s ability to reach prospective marks directly. They’ll use it not only to expand their schemes, but also to extend them by filling current investors’ ears with soothing words that blind them to the fact that they’ve already flushed their retirement savings down the tube.
I often tell audiences why the investing landscape right now is more dangerous than it has been since before the crash of 1929. I list the reasons: 10,000 baby boomers turning 65 every day and, often, moving their 401(k) accounts into self directed plans. Social security soon to become less generous. Brokers and advisers under extreme pressure due to reduced commissions. Regulators understaffed and underfunded. Pension funds desperate to get back into the black. Baby boomers desperate to get back on track to “the number,” that, pre-2008, they thought they needed to retire. A recent enforcement case from the SEC has given me something else to add to that list: social media. According to the SEC’s press release: (more…)
On January 9, 2012,
in Montana, Montana, Ponzi schemes, Promissory Notes, Scams, The Vigilant Investor,
by IW Dog
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…)
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…)
On January 5, 2012,
in Illinois, Investment Advisers, SEC, Scams, Securities Industry (general), The Vigilant Investor,
by IW Dog
Why should an investor care about an RIA’s AUM?
Size it up for yourself: all other things being equal, are you more likely to entrust your life savings to an adviser who manages $3 million or an adviser who manages $200 million? The bigger figure seems to speak of success, right? If an adviser is managing that much money (the total is called “assets under management” or “AUM” in industry slang), clients must be happy. They must be sticking around year after year. Registered investment advisers (RIAs) know that investors draw those conclusions, which is why they talk about their AUM the way recreational fisherman talk about their catch. And, the number of times that RIAs exaggerate their AUM might rival the number of times that fisherman add a pound or two to the weight of that large mouth bass they’ll brag about to friends. The SEC believes that it has caught an RIA telling a whopper of a fish story. According to InvestmentNews: (more…)
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…)
On January 3, 2012,
in Affinity Fraud, California, California, Florida, Florida, Ponzi schemes, Scams, Securities Industry (general), The Vigilant Investor,
by IW Dog
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…)
Videos
The Case of the Long-Armed Latvian
There are downsides to a shrinking globe.
On the heels of Friday’s post about Russian fraudsters doing damage in the United States comes word that the SEC has charged an individual from the former Soviet republic of Latvia with hijacking electronic brokerage accounts of United States citizens and placing trades in the accounts for the purpose of driving prices up or down. According to the SEC, the Latvian looter then traded stocks in his own account to profit from the price movements he had engineered through trading in the hijacked accounts. According to the SEC’s press release: (more…)