Bad Report Card Fraud

The very human temptation to cover up bad performance transformed them into frauds.

At Investor’s Watchdog we call it “bad report card fraud.”  Investment managers who face the prospect of reporting bad results choose instead to cover up the bad performance; changing the “D” on their report card to a “B” before handing it to their clients.  It is easy to understand; anyone who has contemplated the consequences of poor performance has at least been tempted to hide the poor performance.  Many investment managers give in to that temptation, believing that things will “turn around soon” and that  they’ll be able to report legitimate numbers in the next statement.  What they find instead is that the terrain on the other side of that ethical line has a steep downward slope.  Soon, they know that the money invested by new clients will have to go to make phony distribution payments to earlier investors. A single ethical lapse turns an otherwise honest manager into a Ponzi scamster. (more…)