Back in 2004 the Australian Securities and Investments Commission (ASIC) began investigating Westpoint Corporation Pty Ltd (Westpoint), a property development company that was offering investors a high rate of interest on investments in its development projects. The ASIC ultimately learned that Westpoint was a gigantic Ponzi scheme.Like all Ponzi schemes, Westpoint created the illusion of a profitable enterprise by using money invested by later investors to pay supposed profits to earlier investors. The ASIC believes that Westpoint raised more than $300 million from more than 4,000 small investors. Many people bought the bogus Westpoint investments through their registered investment advisers, professionals who are supposed to hold themselves to a higher duty of trust to their clients. Many of those investment advisers are now defendants in class action lawsuits by the defrauded investors seeking return of the money they lost in the Westpoint Ponzi.Looking back on it, it is hard to imagine how a registered investment adviser would choose to sell their clients the Westpoint investments. Looking at it from the other end gives us the answer.
Westpoint paid investment advisers ten percent of every dollar invested. Ten percent is a huge commission, too big to pass up. Investment advisers did only a cursory investigation of Westpoint. Any operation that can afford to pay ten percent commissions, must be making a lot of money, right? The investment advisers saw their clients paid on time and the amounts promised. What more did they need to see?
The investment advisers who sold Westpoint are no different than any other investment adviser around the globe. They are trained and experienced in assessing the likely profitability of legitimate companies. But they have no training or experience in how to spot cleverly-disguised frauds. If the recent rash of world-wide Ponzi schemes teaches investment advisers that they need to retain professional investor protection for their clients, at least some good will have come of it. If not, hundreds of thousands (if not millions) of senior citizens worldwide will continue to lose what they have worked so hard to save. The tsunami of investment fraud breaking over the world will not abate for at least twenty years. Only those who chose investment advisers who retain professionals to investigate for fraud, will be able to enjoy the retirement they planned and saved for.
