Post by jeffolie on Sept 25, 2011 10:38:54 GMT -6
Harry Markopolos: How to Spot a Fraud
"I assume fraud until genius is proven," says the man who spotted Bernie Madoff's deceit way back in 2000
September 26, 2011
It’s easy. It’s like whack-a-mole. Focus on the manager or the company that is head and shoulders above the rest. Whenever somebody has outstanding performance, Wall Street assumes genius. I assume fraud until genius is proven. Look for the outperformance and investigate there. Compare a money manager’s record vs. others using a similar strategy, or a company’s record against others in the same asset class. If the numbers are too good to be true, they rarely are. A decade ago, there was one energy company head and shoulders above all the others. That was Enron. There was also an insurance company above the rest. That was American International Group. In telecommunications, there was one company above all others. That was WorldCom. They were all accounting frauds.
Today we have one company above all others in technology. That would be Apple. But there’s a visible reason for that, so Apple’s not a fraud. Bernie Madoff said his performance was roughly seven and half times better than the stock index he pretended to be benchmarking himself against. If you’re seven times better, two things can be true: One, you’re a fraud. Or two, you’re an alien from outer space and have perfect foreknowledge of the capital markets.
Bernie’s performance line also went up at a 45-degree angle. In finance, there’s no such thing. If you see a 45-degree angle, either you’re in the middle of a speculative bubble and it’s going to end badly, or fraud is present. There are some simple checks. Do litigation and background searches. If you see arrests or civil lawsuits, access those. It will all be laid out in the legal complaint. Talk to former employees; find out why they left. Ask them about fraud. If they say “I’d love to talk to you, but I signed a nondisclosure agreement,” there’s something bad underneath the surface. Likewise, if your money manager refuses to answer questions, or gives you overly complex answers, assume deception. If you don’t understand the strategy, even after a manager explains it, don’t assume you’re stupid; assume your manager is trying to pull one over on you. Anyone who truly understands their craft should be able to explain their strategy in layman’s terms on a single sheet of paper. If they can’t, you shouldn’t invest.
Markopolos, a financial analyst, alerted the SEC to Madoff's scheme in 2000, eight years before Madoff's arrest.
www.businessweek.com/magazine/harry-markopolos-how-to-spot-a-fraud-09222011.html
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Scam Watch: Cars and investment fraud
September 25, 2011 | 4:23am
Here is a roundup of alleged cons, frauds and schemes to watch out for:
Investment advice -– In his new book, “The Vigilant Investor,” former Securities and Exchange Commission attorney Pat Huddleston offers a list of tips to help investors avoid Ponzi schemes and other scams. Among them:
-- Check with state regulators to make sure the salesperson is properly licensed. If the person is not licensed, it’s probably a fraud.
-- Check federal court records (available for a fee through to see if your investment broker has been sued or criminally prosecuted.
-- Don’t be blinded by celebrity power. Avoid investing with people who like to drop names.
-- Avoid high-pressure sales pitches. Anyone who pressures you to invest does not have your best interests in mind.
Fake website -– Kelley Blue Book, which provides information on new and used cars, is warning online car buyers to be wary of a scam utilizing a website that uses its name without authorization. The Irvine company warned that the website solicits funds from car buyers by offering an escrow-based buyer-protection program that Kelley Blue Book does not offer. Buyers are told to wire payments to a third party, which absconds with the victims’ money, Kelley Blue Book said in a news release. The company said it is working to have the website removed. In the meantime, car buyers should be aware that Kelley Blue Book does not offer such a service.
Ponzi scheme -– A man who operated a Ponzi scheme that targeted Korean Americans throughout California has been sentenced to more than six years in prison. Euirang “Chris” Hwang had pleaded guilty in 2010 to charges that he collected about $8.5 million from 65 victims through a company called Pinupito in Irvine. He promised investors returns of up to 45% per year, saying he made huge profits by buying and selling small companies in Korea. But rather than using the money for such purposes, he used it to pay returns to early investors and on personal expenses, including leasing expensive cars, the U.S. attorney’s office said in a news release. In addition to the prison sentence, Hwang was ordered to pay more than $7 million in restitution to victims.
latimesblogs.latimes.com/money_co/2011/09/scam-watch-cars-and-investment-fraud.html
"I assume fraud until genius is proven," says the man who spotted Bernie Madoff's deceit way back in 2000
September 26, 2011
It’s easy. It’s like whack-a-mole. Focus on the manager or the company that is head and shoulders above the rest. Whenever somebody has outstanding performance, Wall Street assumes genius. I assume fraud until genius is proven. Look for the outperformance and investigate there. Compare a money manager’s record vs. others using a similar strategy, or a company’s record against others in the same asset class. If the numbers are too good to be true, they rarely are. A decade ago, there was one energy company head and shoulders above all the others. That was Enron. There was also an insurance company above the rest. That was American International Group. In telecommunications, there was one company above all others. That was WorldCom. They were all accounting frauds.
Today we have one company above all others in technology. That would be Apple. But there’s a visible reason for that, so Apple’s not a fraud. Bernie Madoff said his performance was roughly seven and half times better than the stock index he pretended to be benchmarking himself against. If you’re seven times better, two things can be true: One, you’re a fraud. Or two, you’re an alien from outer space and have perfect foreknowledge of the capital markets.
Bernie’s performance line also went up at a 45-degree angle. In finance, there’s no such thing. If you see a 45-degree angle, either you’re in the middle of a speculative bubble and it’s going to end badly, or fraud is present. There are some simple checks. Do litigation and background searches. If you see arrests or civil lawsuits, access those. It will all be laid out in the legal complaint. Talk to former employees; find out why they left. Ask them about fraud. If they say “I’d love to talk to you, but I signed a nondisclosure agreement,” there’s something bad underneath the surface. Likewise, if your money manager refuses to answer questions, or gives you overly complex answers, assume deception. If you don’t understand the strategy, even after a manager explains it, don’t assume you’re stupid; assume your manager is trying to pull one over on you. Anyone who truly understands their craft should be able to explain their strategy in layman’s terms on a single sheet of paper. If they can’t, you shouldn’t invest.
Markopolos, a financial analyst, alerted the SEC to Madoff's scheme in 2000, eight years before Madoff's arrest.
www.businessweek.com/magazine/harry-markopolos-how-to-spot-a-fraud-09222011.html
======================
Scam Watch: Cars and investment fraud
September 25, 2011 | 4:23am
Here is a roundup of alleged cons, frauds and schemes to watch out for:
Investment advice -– In his new book, “The Vigilant Investor,” former Securities and Exchange Commission attorney Pat Huddleston offers a list of tips to help investors avoid Ponzi schemes and other scams. Among them:
-- Check with state regulators to make sure the salesperson is properly licensed. If the person is not licensed, it’s probably a fraud.
-- Check federal court records (available for a fee through to see if your investment broker has been sued or criminally prosecuted.
-- Don’t be blinded by celebrity power. Avoid investing with people who like to drop names.
-- Avoid high-pressure sales pitches. Anyone who pressures you to invest does not have your best interests in mind.
Fake website -– Kelley Blue Book, which provides information on new and used cars, is warning online car buyers to be wary of a scam utilizing a website that uses its name without authorization. The Irvine company warned that the website solicits funds from car buyers by offering an escrow-based buyer-protection program that Kelley Blue Book does not offer. Buyers are told to wire payments to a third party, which absconds with the victims’ money, Kelley Blue Book said in a news release. The company said it is working to have the website removed. In the meantime, car buyers should be aware that Kelley Blue Book does not offer such a service.
Ponzi scheme -– A man who operated a Ponzi scheme that targeted Korean Americans throughout California has been sentenced to more than six years in prison. Euirang “Chris” Hwang had pleaded guilty in 2010 to charges that he collected about $8.5 million from 65 victims through a company called Pinupito in Irvine. He promised investors returns of up to 45% per year, saying he made huge profits by buying and selling small companies in Korea. But rather than using the money for such purposes, he used it to pay returns to early investors and on personal expenses, including leasing expensive cars, the U.S. attorney’s office said in a news release. In addition to the prison sentence, Hwang was ordered to pay more than $7 million in restitution to victims.
latimesblogs.latimes.com/money_co/2011/09/scam-watch-cars-and-investment-fraud.html