Getting Filthy Rich

How would you respond when a stranger cold calls you and tells you that he can make you filthy rich by buying and trading stocks? Most of us would hang up but there are people who think maybe there is something to the getting rich by a stranger’s generosity and listen a bit too long.

Before you laugh I’d like to remind you that Harry Markopolos was the first to uncover the Bernie Madoff investment Ponzi scam years before Madoff was brought down by the 2008 recession, and eventually sent to several lifetimes in prison. Markopolos tells of his madding frustration, after uncovering that Madoff was a crook, in getting the Securities Exchange Commission and investors to listen him. In his best selling book, ‘No One Would Listen,’ Markopolos details his being turned away simply because people did not want to not believe in Madoff. In fact when Markopolos, a well respected investment manager himself, went to wealthy Madoff clients, both overseas and here, and brought his suspicions and proof to their attention they wanted nothing to do with the truth.

The investment industry is going through some extraordinary times especially with the 2008 market meltdown, the corruption of supposedly safe investments, and the theft of billions by those the industry once blessed as leaders. Some investors, who normally know better, think they have a golden opportunity when approached by these con-men. In fact, plain old lying and stealing is still being practiced  by boiler rooms and representatives. Once these outfits have their hooks in you it’s almost impossible to wiggle away.

The con is not in churning your account for the commissions but to steal ALL your money and make it seem like a trade gone sour. Sometimes these firms are using your money to pay previous investors who have gotten suspicious or have asked for some or all of their money. The bottom line is they make it seem like you are a special investor and they are going to make you rich.

Fancy brochures and a good story are the basics to get someone hooked. A flashy website is less expensive and just as impressive as an office building on Wall Street. Someone in Columbus can’t see the office but they can click a link and see a group of smiling faces and a office building staffed with busy workers. Usually the office is a boiler room in a basement, loft or someplace with a Wall Street mailing address but with none of the panache or staff.

The story they weave is that they’re the Experts and have consistently outperformed the best money managers in the world. This bit of chum is sprinkled throughout their web site, conversations and brochures although no respected accounting firm has ever audited the results. (Remember Madoff used a small accounting firm and not one of the major firms to audit his results.) Madoff himself was once Chairman of the NASDAQ.

Unbelievably extraordinary returns are posted on a consistent basis on the victim’s investment statements. Yep, forget those losing years, days and weeks. This firm only cranks out winners. They beat the best but you cannot find them listed by Morningstar or any analytical firm.

We’re brand new but our managers all have vast experience at…. ‘and they name hedge or private money managers, using their extraordinary history as their own.

Because you’re special is not spoken but suddenly this investment house is going to make you rich. Returns that would make any hedge fund blush are bandied about to you as ordinary, You wonder but never ask why the firm doesn’t market their skills to institutions, retirement plans, pensions or the uber-wealthy but instead wants your money? The answer is simple; because they know you’re due diligence usually stops at asking only how much money can they make for you.

Always requesting more and more of your savings. Soon after they’ve discovered they have all your money you find yourself in a bad trade that went suddenly south (that you've approved) it is way too late to do anything.  So sorry, but we knew the risk on this trade and you approved it. We’ll get it back next time. Only you’re out of dough and there is no next time and hundreds of thousands of retirement dollars are gone.

Cagey investors think they can pull the plug and get away from a ‘losing’ trade with investment stops don’t realize it is never the trade but the con is for all the principal.

How can you protect yourself: when something like this starts unfolding common sense usually leaves and greed walks in. An investor has to step back and do some basic homework:

• Request an audited history of past performance. It has to be a firm that is recognized such as a major accounting firm you can call.  If you’re so good- prove it!
• Check with FINRA and also the state regulators to see about complaints and any investigations.
• A list of names of people who have invested with the firm (This is usually not a good source but puts the firm on notice you plan on doing due diligence before you hand over your dough).
• Who is the money manager? When you get their Curriculum Vitae make sure you do call and check them out. Sometimes the expert does not work at the firm but has their identity hijacked. 
• If you’re already invested request for a substantial portion of your investment to be wired back to your bank. Thieves hate to give what they once have worked hard to get and will do anything to dissuade returning even a penny. (Although I do know of an investment crook in California that returned 100% of the investment back to his victims only to be able to get that plus more from them).
• Never buy the adage that more money invested means more returns for you. If they’re so good a small amount of your nest egg should be enough for them to make you millions. The whole game is to get ALL your money and lose it in one big trade.
• Every brokerage firm hires legal and accounting firms to represent them- get those names, research them and call.
• Finally, if it’s too good to be true it usually is and you can stop right there.

If you know of someone who’s been a victim let me know so I can share with everyone.

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.