I often write about fraud on Wall Street, and, frankly, I don't tend to pull my punches. For a financial fraud to be successful, you typically need a few elements:
It's not as if a savvy scamster simply puts his or her hand in your pocket and removes your wallet. No, that's less a fraud and more pickpocketing - still a crime, but not quite the same thing. In the case of a well-conceived and executed financial fraud, investors willingly open their pockets, as wide as they can, and happily let the crook dip in there and take them for all they're worth.
In hindsight, it becomes apparent to the defrauded that they asked too few (if any) questions and disregarded the necessity of meaningful due diligence. There is also the maddening revelation that those entrusted with policing the stock markets were too busy with nonsense rather than the hard work of regulation.
Ultimately, that leaves the victims twice-victimized. Once by the criminal. And, then again, by their own pangs of guilt after the fraud is unravelled and the marks see that what was too good to be true, was too good to be true. The anger at the crook who took their life savings is often matched by the recriminations launched by the victims on themselves. How could I have been so blind . . . so stupid is frequently the epitaph of such financial fraud.
I view it as my duty to point out the stupidity that serves as the mortar between each brick that forms the wall of a successful Wall Street fraud. My intent is not to ridicule but to warn others who might fall for the same scam. You can read some of my more recent efforts at exposing financial frauds in these "Street Sweeper" columns:
In New Ponzi Scheme: Blame Bernie (January 10, 2011), I discussed a recent Securities and Exchange Commission case involving a Ponzi fraud. In describing the impact of the scam, I stated:
By the time the Ponzi scheme unraveled, Morris, Haley, Linford and Nguyen, and their respective entities, had allegedly defrauded at least 90 investors out of at least $60 million by offering and selling unregistered and non-exempt promissory notes based on material misrepresentations and omissions.
Many of the investors who lost money in the Fund were inexperienced, unsophisticated and had minimal net worth and annual income. Many investors lost their entire savings. Some investors went so far as to borrow the money they invested and are now indebted beyond their ability to repay their lenders.
In truth, the Complaint alleges that Morris did not work with private traders to obtain lines of credit that were invested. As has become the norm with these Ponzi schemes, Morris is accused of using investor funds to make bogus interest payments to earlier investors from capital raised from later investors.Moreover, rather than investing the funds in debt and equity vehicles, real estate, commodities and leasing it to private traders, Morris used investor money to support a lavish lifestyle, including a luxurious home and several sports cars, and to make illusory interest payments to early investors in his scheme.
On January 12, 2011, a comment was posted on my blog by an individual purporting to have been a victim of the above Ponzi scheme. I offer you the writer's comments and my response, and I sincerely hope that the excerpted exchange will deter others from the pain that the investor has endured:
Comment Posted by kittypaws63 (01/12/11)
I am one of the investors who was scammed by this scheme and also found the "truthinblogging" comment disturbing. I can verify that what the media and Mr. Singer have printed concerning what some of the investors were shown and told is completely true. I also appreciate his choice of words at how investors were "savaged and financially devastated". Some of the media has made us out to look gullible and uneducated, as if we were as guilty as the perpetrators. Some very highly educated people have been taken for a ride here because of a personal friendship and trust for an individual accused in this case. I admit I felt a little stupid after reading some of Mr.Singer's comments between the fact paragraphs, but many didn't apply to us and the lawyer working for the fund was very clever in his deception. Our rate of return was also lower and more believable than any of the rates I have seen published in any article. Now, after over 21 years in the military and nearly three decades of spotless credit, my family is losing everything as I write this. We hoped beyond hope that what we were told would come to pass, but after two years the hope had faded. And then last Saturday someone else in the fund told me to look at the local news website, where I found the SEC story posted. I spent the evening searching the internet for more information and found that one of the accused had committed the same type of crime in Colorado in 2005. If just ONE person from our branch of the investment would have googled his name we wouldn't be where we are today. But personal trust/friendship blinded us all from considering that he could possibly be taking us for a ride. It is hard to accept the hand my family has been dealt. I hope, if these men are indeed guilty, that they pay dearly for what they have done. At this point I can see no other explanation for the course of events except that they are guilty. Our family has been financially devastated beyond repair. We withdrew from our retirement and borrowed from a credit card to keep our heads above water, with monthly promises of principle return on it's way. With this news we are just letting everything go, including our home. The depth of this deception will affect us for the rest of our lives.
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Reply From Bill Singer (1/12/2001)
Please understand that I fully appreciate your comments. Clearly, successful fraudsters are such because they are able to defraud their victims with skill and savvy. The fact that in looking back at a fraud I am able to raise the troubling and disturbing questions about why folks bought into this or why they believed the puffery, only underscores how compelling the opportunity must have seen within the vortex of lies and deceit spun by the defendants.
I have been a lawyer on Wall Street for three decades. I have been a regulator, a defense lawyer, and a claimant's lawyer during my career. I am also a very active investor. I raise the uncomfortable questions in my article so as to better protect future investors from similar scams and equally gifted scamsters. Intelligence, wealth, or experience rarely serve to defend all victims from a committed and skilled con artist. Simply look at the education, the financial status, and the resumes of many of Madoff's victims and it is readily apparent that many of the so-called "best and brightest" were among those most thoroughly deceived.
Ultimately, each investor must do sufficient due diligence for each contemplated investment. The death knell of many a planned fraud is the persistent question or the deferred answer (until you get independent confirmation). Nonetheless, when the charm is being worked and the promises made, even the best of us can get caught up in the whirlwind.
I sincerely wish you and your family the best and hope that you find a way to recover from this crime.