by Bill Singer
Investment Guru Moons Investors
February 14, 2014
George Bernard Shaw quipped ""I don't know if there are men on the moon, but if there are, they must be using the earth as their lunatic asylum." Keeping those sage words in mind, welcome to Wall Street and the White Elephant Trading Company and the mysterious investment strategy using gravity and lunar cycles.
The White Elephant In The Room
According to a Securities and Exchange Commission ("SEC") Complaint, Gurudeo "Buddy" Persaud allegedly engaged in a Ponzi scheme whereby he lost $400,000 of investor funds through his trading and diverted at least $415,000 to pay for his personal expenses. In furtherance of his scheme, Persaud formed and controlled the White Elephant Trading Company LLC. SEC v. Gurudeo a/k/a "Buddy" Persaud (MDFL, 12-CV-932, June 20, 2012).
Yup - you got it - the "White Elephant" trading company. That name alone should have given some folks pause before writing out their checks and investing with Persaud. Moreover, as alleged in the SEC's Complaint, Persaud was literally trying to hide this White Elephant from his employer brokerage firm (Money Concepts Capital Corp., of Orlando, FL)
15. Persaud formed White Elephant in June 2007 to solicit investors for the private equity fund. Persaud was employed as a registered representative at a broker-dealer and investment adviser firm. To conceal his involvement in White Elephant from his employer, Persaud named two of his sons as its sole managing members. In reality, Persaud managed and operated White Elephant, made all trading decisions, maintained control over White Elephant's brokerage and bank accounts, and had direct contact with investors whom he solicited to fund the company.
The Complaint alleges that from about July 2007 until about January 2011, Persaud solicited investments for White Elephant and promised to pay investors 6% to 18% annual returns. Allegedly, he told prospective investors they would be making a risk-free investment in White Elephant's private equity fund, which would invest in the futures and other markets. Persaud touted his experience in the financial services industry as a certified financial planner and personally guaranteed to his victims that their principal contributions were secure.
Pachyderm Ponzi?
You'll pardon me if I don't go in to a lot more detail
because underneath all this elephant stuff is little more than a tired, garden variety Ponzi. You know how it goes: Persaud allegedly promised huge returns, puffed up
his credentials, and created phony account statements to hide his trading
losses. He conned some 14 investors in Florida, Connecticut, and New York out of some $1 Million. The SEC asserted that
these victims included one unaccredited investor and at least two
unsophisticated ones. The SEC demanded disgorgement of ill-gotten gains,
financial penalties, and injunctive relief against Persaud to enjoin him from
future violations of the federal securities laws.
NOTE: The SEC Complaint merely contains allegations and the
defendant is presumed innocent unless and until proven guilty in a court of
law.
Lunatic Fringe?
As is the case everywhere else, the crystal balls on Wall Street are little more than round, transparent orbs with no special powers. Beyond those few talented, legitimate analysts (perhaps "legendary" would be a more apt adjective), too many self-styled market gurus and prognosticators are, at best, media personalities, and, at worst, hacks. Lately, the secret to success on Wall Street seems to rely upon illegal inside information or fabricated trading records that hide losses. As to Persaud, let me offer you this bit of jaw-dropping insight as set forth in the SEC Complaint:
31. Persaud solicited investors by, among other things, touting his investment skills and experience as a certified financial planner. He guaranteed annual returns based on his trading decisions.
32. However, Persaud did not tell investors that in making at least 90% of his trading decisions, he relied on directional market forecasts based on lunar cycles and gravitational pull provided by an internet service.
33. The primary principle underlying Persaud's trading strategy was that the gravitational pull between the moon and Earth affects mass human behavior, which in turn affects the stock markets. For example, Persaud believed that when the moon is positioned so there is a greater gravitational pull on humans, they feel down and are therefore more inclined to sell securities in the markets.
34. Persaud failed to disclose he would trade investors' contributions based on lunar cycles and the gravitational pull between Earth and the moon.
Is Gravity Pulling Your Leg?
The genesis of this gravitational theory of investing may well come from the 2006 novel "Paradigm," by Robert Taylor, in which the author sets forth the "Taylor Effect,"an investment theory asserting that gravitational fields influence human behavior and, accordingly, the stock market. As explained on the Xyber9Trends website's "About Robert Taylor / The Discovery" page:
THE TAYLOR EFFECT
The financial market's expansion and contraction is qualitatively in direct correlation to the increases and decreases in gravitational fluctuations experienced at the human level. The increases in market price are in direct response to decreases in gravitational forces; the decreases in market price are in direct response to the increases in gravitational forces.
This discovery was so outstanding that he diverted most of his attention to the theory that gravitational fluctuations may have a strong influence on human behavior. After nine years of research, he was satisfied he had a theory defining the predictability of human behavior.
In 1996, Taylor solicited the help of other theoretical physicists and scientists to advance his discovery. These mathematicians and engineers are considered to be the leading scientists in the field of aerospace control systems. Together, Taylor and his group developed and wrote over two hundred programs in the field of time domain and frequency domain control systems. Taylor's focus was to develop sophisticated software programs that could successfully forecast financial markets. His team concentrated their efforts on developing models for the Dow Jones Industrial Average (DJIA); The Standard and Poors 500 index (S&P500); the NASDAQ Average; U.S. Treasury Bonds; and currencies.
Nobel Prize Nomination: In September of 1999 Taylor submitted his finished programs and empirical studies to a world-renowned group of scholars, colleagues and scientists in Washington DC. Their task was to evaluate the reliability and validity of Taylor's incredible findings. They concluded Taylor's discovery was so profound that on March 14, 2000 this group of scholars and scientists signed a petition to nominate Robert D. Taylor for the Nobel Memorial Prize in Economics and titled his revolutionary findings, "The Taylor Effect".
Notwithstanding the merits of the Taylor Effect, the SEC seemed largely troubled by Persaud's non-disclosure that he was investing according to lunar cycles or gravitational pull; in contradistinction to his boasts to his investors about his accumulated years of investing expertise. The SEC has argued that a reasonable investor would have wanted to know that Persaud was utilizing the Taylor Effect (or any variant thereof) as the basis for his investment decisions.
Going Criminal
On February 12, 2013, an Indictment was unsealed in the Middle District of Florida charging Persaud, 47, Orlando, FL, with one count of mail fraud and four counts of wire fraud, for which he faced on each count a maximum penalty of 20 years in federal prison. The allegations essentially stated that Persaud had formed White Elephant Trading in 2007 and fraudulently used that vehicle in furtherance of a Ponzi scheme whereby he persuaded investors that through the use of his trading skills that he would generate returns of between 6 and 18%.
Pleading Out
In accordance with the terms of his Plea Agreement, on August 13, 2013, Persaud was sentenced to three years in federal prison for mail fraud and ordered to pay $948,340.00 in restitution to the victims of his scheme.
The Fault, Dear Persaud, Is Not In Our Stars, But In Ourselves
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2012, by public customer Claimant Abreu against Respondent Money Concepts Capital Corp. (the Orlando, FL, brokerage firm where Persaud was a registered representative). Among the alleged causes of action were breach of fiduciary duty, failure to supervise, selling away, fraud, and unsuitability in connection with Persaud's "alleged failure to disclose that the trading strategy he employed was based on his belief that markets are affected by the lunar pull and gravitational forces and his alleged use of Claiant Abreu's money to fund a fraudulent Ponzi scheme." Claimant Abreu sought at least $166,000 in compensatory damages, punitive damages, attorneys' fees, and costs. In the Matter of the FINRA Arbitration Between Doreen Abreu, Claimant, vs. Money Concepts Capital Corp., Respondent / Third-Pary Claimant and Gurudeo Sukul Persaud, Third-Party Respondent (FINRA Arbitration 12-02801, February 3, 2014).
Respondent Money Concepts filed a Third-Party Claim seeking at least $850,000 in compensatory damages, punitive damages, interest, attorneys' fees, and costs against Third-Party Respondent Persaud. At the close of the hearing, Money Concepts asked the FINRA Arbitration Panel to find the Persaud's liability was a non-dischargeable debt under the United States Bankruptcy Code.
Settling Down
In February 2013, Claimant Abreu and Respondent Money
Concepts notified FINRA that they had settled their dispute and the Panel made
no findings pertaining to those claims.
In June 2013, Money Concepts requested additional monetary
damages arising from its settlement with Abreu and White Elephant investors.
Without any response from Persaud, the Panel granted the motion on July 16,
2013.
Inmate Inconvenience
On November 14, 2013, legal counsel for Persaud withdrew citing "great difficulty communicating with her client due to Third-Party Respondent Persaud's incarceration." In December 2013, the FINRA Arbitration Panel was advised that Persaud would not participate in the upcoming hearing.
Panel's Award
The FINRA Arbitration Panel
found Third-Party-Respondent Persaud liable on the claims of:
- indemnification, breach of contract, common law fraud and fraudulent misrepresentations and ordered him to pay to Third-Party Claimant Money Concepts $327,856.00 in compensatory damages plus interest; and
- indemnification, common law fraud, fraudulent misrepresentations, breach of fiduciary duty, violation of Florida Statutes §517.301, conversion and civil theft and ordered him to pay to Third-Party Claimant Money Concepts, as assignee of Claimant Abreu and the White Elephant investors, $491,783.88 in compensatory damages plus interest.
Further, pursuant to Florida Statutes §517.211, the Panel made a
prevailing party finding in favor of Third-Party Claimant Money Concepts, which
entitled that party to seek recovery of attorneys' fees and costs from a court
of competent jurisdiction.
Finally, the FINRA Arbitration Decision notes that:
To learn more about the Taylor Effect, watch this video:3. The Panel declines to rule on the issue of non-dischargeability under the United States Bankruptcy Code, 11 U.S.C. §523(a). However, the Panel makes the following findings of fact and states that Third-Party Respondent Persaud: 1) obtained money from Claimant Abreu and the White Elephant Investors by false pretenses, false representations and actual fraud; 2) obtained money by use of a written statement that was materially false respecting his and/or White Elephant Trading Co.'s financial condition that he caused to be made or published with the intent to deceive; 3) engaged in fraud and defalcation while acting in a fiduciary capacity; 4) engaged in embezzlement and larceny; 5) committed willful and malicious injury to Third-Party Claimant Money Concepts, Claimant Abreu and the White Elephant Investors; 6) violated the Florida Securities and Investor Protection Act, Florida Statutes §517.301; and 7) engaged in common law fraud, deceit and/or manipulation in connection with the purchase or sale of securities.