“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:
A Fort Collins man who previously went to prison for theft now faces new charges of securities fraud and theft following a statewide grand jury indictment.
Martin Lee Hutcheson, 54, is accused of soliciting about $1.4 million from 12 investors for boat slips and property development in Missouri, and purchases of distressed residential properties in Northern Colorado that were to be rehabilitated and resold at a profit, according to the indictment filed by Colorado Attorney General John Suthers’ office.
Ten years ago, Hutcheson was sentenced to six years in prison after pleading guilty to a charge of using his employer’s money to buy cars and selling them through a side business. He started taking investments in the new case in October 2005, when he still was on parole and paying restitution for the previous case.
Investors were promised returns of up to 50 percent. Hutcheson is accused of lying to investors that the value of their invested funds had increased, knowing that wasn’t true. He failed to disclose previous bankruptcy filings in 1994 and 2001 to investors, according to the indictment.
He also failed to disclose his two previous felony convictions, one in Weld County in 2001 and the other in Larimer County in 1990. And he didn’t use any investor funds to purchase boat slips or real estate in the Lake of the Ozarks development, according to the indictment.
In the previous Weld County case, Hutcheson was sentenced to six years in prison, serving about two in addition to previous time served before he was released on parole in February 2004.
After his release from prison in 2004, Hutcheson ran several businesses in Fort Collins, they focused primarily on property management and real estate transactions. He took money from investors between October 2005 and February 2012, when the indictment was filed.
Does anyone want to bet on whether this scam will be his last? He’s 54 years old. Even if he spends a decade behind bars, he’ll be spry enough to launch another scam on the day he walks out of prison. And that’s what he’ll do, unless he finds religion in the Gray Bar Hotel. Count on it.
You, me, all of us, have a hardwired cognitive bias that leads us to react to these kinds of stories with a firm belief that it could never happen to us. Even when you read the previous sentence you get another rush of that feeling, something like Yeah, I am sure everyone thinks that. But, really, I am too smart, sensible, or sophisticated to fall for something like that. It’s a thought that jumps out from behind a curtain and into your conscious mind without any effort. But, at least in the investment context, it is wrong. Whether you will survive the current tsunami of investment fraud turns on whether you learn how to recognize that bias and tame it, or just go where it leads you.