Banker confessed to running a Ponzi scheme, but was he hiding a bigger crime?
bloomberg.com
bloomberg.com
- Canadian engineers who had recently sold a water-treatment company to General Electric Co. for $656 million.
- A few months later, Reissfelder, a laid-back German coder living near San Francisco, sold his travel startup to Expedia for $85 million
I doubt I could ever really trust anyone enough for me to hand over that amount of money and I doubt I could express the level of anger when all that money vanishes into thin air.
But, I don't have that kind of money to play with anyways, so I've haven't looked into it and can't make an accurate statement about why someone would choose a boutique investor.
[1]: Many smaller firms use Fidelity, Vanguard, Schwab, or another large firm as custodian: https://www.bogleheads.org/forum/viewtopic.php?t=170678, https://www.wallstreetoasis.com/blog/how-pwm-really-works-pa...
Also, they'll appreciate that you're doing this due diligence. If you get any pushback, move on.
Also worth noting that this problem is mostly moot for a typical retail investor who has assets at a name-brand brokerage like ETrade, Schwab, or TD Ameritrade, and already has self-service access to the bank/brokerage's site. At that point, an individual advisor might be able to make unilateral allocation changes, but the money's there and the bank will have a trading history. This problem in this article basically starts with trusting a lot of money to an individual or tiny firm, and that basically only comes up in PWM and non-traditional asset classes.
(And yes, a few tiny PWM firms do use their own Web sites, and you should be much more skeptical of the data you're getting from a 6-employee firm's site). Get access to your custodial account at a name-brand firm's site, or change asset managers.)
The obvious one is greed, if you believe that you have found the best investment, why allocate funds to the second best.
The less obvious one is all about UX: when people who don't consider wealth management their life's calling happen upon a fortune, they just want that money safely out of mind. And safely, to them, includes not causing unintended disagreements with the taxman. This requires keeping things simple enough to feel confident in being able to at least roughly understand what their professional advisors are doing. Obviously, an "all eggs in one basket" approach with a mainstream investment like a basic ETF would be the much lesser evil. But when people have a high base level of distrust in any wealth management professional this can easily blind them to the all-important difference between a regular whitehat tax advisor and a sleazy ponzi salesperson, making them the perfect mark for the latter.
Search for the word 'ponzi'
https://en.wikipedia.org/wiki/List_of_American_Greed_episode...
I really enjoy reading about whitw collar crime so this is right up my alley B)
> A few months later, Reissfelder, a laid-back German coder living near San Francisco, sold his travel startup to Expedia for $85 million. He was 33, and with his cut, he was looking forward to traveling the world with his fiancée. That made Reissfelder the perfect target: newly rich, financially inexperienced, and distracted. The same people who had introduced Gaglio to the Benedeks—a network of tax lawyers called the Society of Trust & Estate Practitioners, or STEP—set him up with Reissfelder. Gaglio quickly formed an emotional connection. When Reissfelder said he wanted to lose weight, Gaglio forwarded photos of himself as a pudgy youth. Before long, Gaglio was signing his daily texts and emails with “Bises”—kisses. “In my mind, I’m thinking the familiarity was weird—but they’re French, you know?” Reissfelder says. “When he started suggesting investments, I said no, but he was so insistent, and I kind of felt obliged.” Reissfelder even ended up inviting Gaglio to his wedding in the Cayman Islands.
It sounds like it was a slow burn leading up to suggesting that Reissfelder invest money with Gaglio.
On one hand, I'm inclined to say: Beware investing with friends of friends. On the other hand, the best investment opportunities often are not public, but only available to a select circle. I think that's one reason affinity fraud so often works.
The sums you quote ($656MM and $85MM) are what they sold their companies for, respectively; maybe those numbers are from public records. But, the primary sellers didn't necessarily retain all that money. There were other stakeholders, legal people to pay, and so on.
Also it says the Benedeks bought another German company after they sold their own company. So I guess that cost them a few million, too.
Your point is still valid - these people handed over substantial sums, between $10MM and $20MM each to a custom investment house.
What amazes me is...where they thought the money was coming from, for the helicopters and private jets.
If a single client justifies a private jet... well, for a going business, the money for the jet (whether chartered or owned) is coming out of that single client. $40k is 0.4% of $10MM. That's a pretty high cost for one meeting.
If the company treats all of its clients this way - each client has to pay that 0.4%. If the company treats only one its clients this way, or only a few of its clients this way, then it's a shady company. Either way, it smells, and it seems obvious from a distance. It's true that the article is the source of the $40k number for the jet, but fees for private jets (chartered or not) are not hard to estimate. Just read the economist, you can see the $$ in the ads.
I don't have $10MM to invest, but the unsustainable overhead seems obvious to me. It would be reckless to ignore it.
If the investment is $1B... a private jet seems required. $40k against that is tiny. I would EXPECT a private jet if I were investing a billion dollars. But for $10MM?
It sucks but did this guy not know who the really safe banks are for this sort of thing? if it had been me I would have been of to coutts or drummonds the day after selling my stake.
> Gaglio’s former partner, Jean-François de Clermont-Tonnerre, is back in business as an asset manager, together with his wife. They have put together a network of firms extending from Malta via Luxembourg to Geneva.
Dr Galli has a Web presence..
http://www.cii2.org/index.php?option=com_community&view=prof...
> He arranged for tours of properties in Geneva and Monaco and once insisted Diana travel on what he said was his company’s private jet. (Hottinger had no plane; it was chartered especially for the occasion, for about $40,000.) “He got us by being relentlessly helpful,” Diana, 59, says. “We’re Francophiles,” adds Andrew, 74. “We both speak French, we love French food—so maybe we were vulnerable. We were impressed.”
His "exploitation" of cross border regulators to evade a harsher conviction and restitution isn't really that notable, in my opinion (albeit clever if he was avoiding money laundering charges as the article suggests). Many legitimate funds have to operate with the same flexibility and exemptions for other reasons, and ultimately you either create value for your investors or you don't.
The real deterrent is that people are more concerned about their kneecaps and families, especially from any gangsters or politicians they have in the fund.
If that deterrent is gone then you'll see more of this.
Second, thats just investment banks and licences in that country and possibly forming your own fund, in that country or with that countrys citizens.
Third, the man was managing other peoples money independently, without working for an investment bank, so it doesnt matter what the broad industry thinks.
Fourth, and if you need a license then maybe it matters, but again not in every country.
Fifth, if you are perceived as making good returns and your potential investors arent making good returns, then they want to invest with you.
The end.
Timothy 6:10. Pet peeve when that word is dropped. Money isn't necessarily behind everything.
One must also assume the original had any purity to be compromised.
The world is broken when people make 100’s of millions of dollars and spend it on villas, expensive art, dining, etc while others work their asses off just to scrape by on a meager existence.
Boo fucking hoo they lost millions to a scammer when that doesn’t even near bankrupt them. Imagine losing millions and just going on living the same lifestyle...
If he had taken a better lawyer and fund manager, this wouldn't have happened.
If you tell someone you will invest their money, but you spend it on yourself, that's a crime.
Can you see the difference?
Or what’s your point?
That would make Warren Buffett is the biggest thief of all and has apparently stolen $487B from investors. Of course he hasn't spent their money, it's actually invested in hundreds of companies and investors can get their money back any time they want just by calling their broker.
But in your mind, it's the same as if he had stolen it. Because of "lawyers, accountants, and stuff".
Saying the Ponzi scheme guy is no different than a sleazy stock broker is massively trivializing his crimes. Sure, what happened to your parents is wrong, but it's far from what he did to his victims.
Where did Warren Buffet lose money unaccountably? Why are you shifting the goal posts, derailing a thread about personal liability for losses to talk about a successful investor?
I think you'll find that the attribute of "intrinsic motivation", which is what your argument boils down to, is not that clear cut (not even to the "fraudster") in reality.
This was to establish that the mere act of losing investor's money isn't fraud. And it's not a question of "intrinsic motivation", it's solely aa question of what they actually did.
Warren Buffett doesn't commit fraud because he tells his investors he's going to invest their money in equities, which has risk. If Berkshire Hathaway goes to zero because he made poor decisions, that's not fraud.
The ponzi scheme was fraud because he was paid to invest the money, but did not do that, instead he spent the money on himself and hid a bunch with his family. How hard is it to understand the difference between doing what you agree to do with someones money and stealing it?
Since it's holiday season, I'll give a more comprehensive answer with a literature recommendation: Thomas Mann's Confessions of Felix Krull. I'm pretty sure you'll like it if you haven't read it yet. Also relevant would be Gottfried Keller's Kleider machen Leute (clothes make the man), a beautiful love story. Unfortunately it apparently has never been translated into English.