Before you junp into the next investment "opportunity": ponder this!
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By John ML Dierckx in General Published: Wednesday, 17 December 08 - 12:31 PM (GMT) Last Updated: Wednesday, 17 December 08 - 12:36 PM (GMT) |
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Recurring themes in investment frauds
Over the years several duped investor files have passed my deck. Recently I have been going over some old journals and notes and I found several characteristics coming back as well let's say recurring themes.
- One person at the top and apparently in control of everything.
Some of the cases passing my desk here in New Zealand, are more obvious as there are in general many more SME and the investment scene is not an exception. There was this family owned business, where father ran the show, beyond control of any of his sons, who just did as father ordered. Separation of duties? Yes, but not for father. On a larger scale, look at Nick Leeson's Barings Bank case and a similar pattern is evident, he controlled front and back office. - Unusually high returns
If you may not be sold on the person directly, than if anything will pull people over the bridge it is the promise of a higher than normal return. In some instances, people even see these high returns but in order to keep the scheme going they are lured into re-investing these schemes instead of taking a payout or - as is the case in Ponzi-schemes - the substantial payouts come in but at one point the scheme collapses when fresh money is drying up. - Lack of independent proof of profitability
What do I mean with that? Well you will get all these fantastic figures, predictions and other tantalizing material, all produced to convince you that this is an opportunity of a lifetime. But what is it they are actually giving you?
Well whatever it is it will look luxurious and flash. Glossy presented prospectusses to support the incredible income prognosis. But you need to ask yourself: were these figures ever audited and by whom? They may very well be an unaudited audit report, preferably presented as a copy of a Dun & Bradstreet report or something similar to give it that extra air of credibility. - Diversion tactics
You are being flooded with information, however it is not necessarily relevant material! Recently I posted an article and that illustrated this tactic just perfectly. I was referred to website reports with all fantastic graphs but was it really about the opportunity I was invited to? NO! Conmen are besides that a master in drawing big conclusions from little or no evidence.
Or otherwise the attention of victims is diverted from the investment opportunity, or business opportunity, to things that are of no relevance, such as incredble headquarters in tropical paradises, mansions that will make you stand back in awe (and who asks or checks whether it is actually owned) and impressive looking materials all around that make it look even more impressive or lifestyles funded by other victims to create this incredible air of success. If you can't sell the "opportunity", sell the person offering it! In Madoff’s case, it was reported that some people were simply begging him to be allowed to become an investor. He was the man, the go-to- guy. - An impressive list of references and endorsements
Have you ever tried to verify the credibility of these references: tried to chase down one or the other extremely busy business person. As this is part of my job, I can assure you it is time consuming and often times a frustrating and job. Is such a reference really worth anything if you can't get a hold of him or her? It is very easy to provide fake references once you are aware if this reality. And even if you do get hold of these people, they may very well either not be aware of the fact that they are being defrauded or they could be fraudsters themselves!
Due diligence: say what?
Whole all these signs may be very obvious, I see on a regular basis a lack of proper due diligence, even by the professionals. Investors, accountants, lawyers, they see but seem not to see. It is not too hard to understand, they simply don't want the bad or deal breaking news; they are committed to make the deal for real. The fraudster knows this and keeps on coming with more meaningless glam documents, rewrites of the same documents, whatever you ask for, until everyone is tired of asking for more. Moreover, and that is where things go bad, once one reputable party is lured in, the rest will often follow blindly and due diligence is out of the door: "someone else will have already done it."
Remember however, it is your money, and therefore you should take responsibility you are handing over, so make sure you do it wisely. All these recent scandals show the importance of safeguarding your interests. And if you are not sure or not getting the answers you are looking for, keep your money in your pocket and look around for the next opportunity. Most of all remember: if it sounds too good to be true it usually is.
1 Comment so far: |
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| This is a very insightful post | Apostille | 05/06/09 |
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Top | Reply to this Author: Apostille (http://www.apostille.us) Date Posted: 06 May 2009 03:59 PM (GMT) This is a very insightful post |
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