Financial Serial Killers: Inside the World of Wall Street Money Hustlers, Swindlers, and Con Men

228 Pages·2010·1.13 MB·English

by  Tom Ajamie

Financial Serial Killers:
Inside the World of Wall Street Money Hustlers, Swindlers,
and Con Men
Tom Ajamie
Bruce Kelly
Copyright © 2010 by Tom Ajamie and Bruce Kelly
All Rights Reserved. No part of this book may be reproduced in any manner
without the express written consent of the publisher, except in the case of brief
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10 9 8 7 6 5 4 3 2 1
Library of Congress Cataloging-in-Publication Data
Ajamie, Tom.
Financial serial killers : inside the world of wall street money hustlers, swindlers,
and con men / Tom Ajamie & Bruce Kelly.
p. cm.
9781616080310
1. Fraud--United States. 2. Swindlers and swindling--United States. 3.
Investments--United States. I. Kelly, Bruce. II. Title.
HV6695.A35 2010
362.88--dc22
2010000144
Printed in the United States of America
“Radix malorum est cupiditas.”
Greed is the root of all evil.
—“The Pardoner’s Tale,” Chaucer
“Rule number one: Never lose money.
Rule number two: Never forget rule number one.”
—Warren Buffett
Table of Contents
Title Page
Copyright Page
Epigraph
CHAPTER ONE - Financial Serial Killers
CHAPTER TWO - The Little Old Lady Who Invested with Buffett and Was
Fleeced by Insurance Agents
CHAPTER THREE - The Financial Serial Killer: Charles Ponzi and the
Criminal Pathology of White-Collar Thieves
CHAPTER FOUR - Bre-X Minerals: How to Make, and Detect, Fool’s Gold
INTERLUDE A - The Investment Industry Speaks
CHAPTER FIVE - Stockbrokers, Greed, and Laziness
CHAPTER SIX - More Stockbrokers, Greed, and Laziness
CHAPTER SEVEN - Hedge Funds and Private Placements: Cachet and
Exclusivity Can Cost You
CHAPTER EIGHT - Securities Regulators and Their Shortcomings: Are the
Regulators Protecting You?
INTERLUDE B - The Investment Industry Speaks
CHAPTER NINE - What Is an Investment Adviser and Why Are So Many
Running Ponzi Schemes?
CHAPTER TEN - Mortgage Fraud: How the Mortgage Industry and
Mortgage Brokers Can Rip You Off and How Promises of Investment Riches
Undermine the Safety of Your Home
CHAPTER ELEVEN - Affinity Fraud, or Holy Rolling, Religious Zeal, and
the Art of the Steal
INTERLUDE C - The Investment Industry Speaks
CHAPTER TWELVE - Wall Street: It’s a Game for Insiders—and Outsiders,
Like You, Should Get Advice
CHAPTER THIRTEEN - The Consequence of White-Collar Crime and How
It Can Destroy Lives and Rip Families Apart
CHAPTER FOURTEEN - Web Tools and Databases to Spot Trouble Before It
Starts
CHAPTER FIFTEEN - Four Outlandish Tales of the Securities Business
CHAPTER SIXTEEN - Elder Abuse and Fraud
INTERLUDE D - The Investment Industry Speaks
CHAPTER SEVENTEEN - Tilting at Windmills: How One Investor Refused
to Give Up His Fight to Track Down His Financial Serial Killer
CHAPTER EIGHTEEN - The Psychology Behind Why We Fall for Scams
Epilogue
A Laundry List of the Classic Warning Signs for Investors
Notes
Acknowledgments
CHAPTER ONE
Financial Serial Killers
Sadly, Bernie Madoff is no different than hundreds, if not thousands, of common
thieves that today blight the American landscape and put you and your life
savings in danger.
Yes, he stole and shifted around billions of dollars, perpetuating most likely
the greatest fraud in American history. However, if one looks at his manner and
methods, at how he actually did it, the conclusion is clear. Simply put, fraudsters
like Bernie Madoff—we call them financial serial killers—won’t be found only
on Wall Street. In fact, they operate in towns large and small across the United
States.
The seduction techniques used by Bernie Madoff to attract investors are the
same well-worn tricks used over and over by financial schemers across the
country. The financial con man always paints a picture of himself as someone
who has a great deal of financial knowledge (certainly more than his victim) and
a “proven” track record of having made a lot of money for others. He’ll likely
show some piece of paper acknowledging his outsized investment gains. He’ll
tell a tale of having spun riches for others. He’ll convince you of how he alone
has, through his hard work, devised a “can’t fail” means of making money: be it
some type of overlooked investment product, some type of hedging technique, or
inside knowledge possessed by only him or his investment team.
Personal relations are imperative to the success of the financial con man. He is
a master at building them. He will bond with his victim, emphasizing their
common interests. Did you both attend the same high school or college? Do you
share the same religion or ethnic background? Did you, perhaps, belong to the
same club or have kids at the same school? Or, by coincidence, did you both
grow up in the same neighborhood?
Maybe, if the con man is particularly lucky, you even know some of the same
people. That is particularly wonderful, because people seem to believe that, if
you and I know the same people then, well, we must share the same values and
we can now trust one another. So what the financial serial killer eventually
achieves is to cause you, the victim, to believe in him. To trust. To feel
comfortable. To let down your guard. All this is done with such skill that even
the smartest among us fails to do the most basic research into the man we will
entrust to hold our life savings, our children’s college money, and the money we
will use to buy our food and our medicine when we near the end of our life and
are too old to work.
It would be ridiculous for us to make blanket statements about a firm or an
industry. This book is not saying that all stockbrokers lack ethics or are
somehow evil. Our goal is to help investors separate the wheat from the chaff to
help identify a broker or adviser who does have questionable business practices
so you can find a good one.
In fact, there are hundreds—and perhaps even thousands—of such financial
serial killers lurking in the financial landscape right now. One group of securities
regulators—FINRA—recently estimated there are fifteen thousand ex-
stockbrokers barred from the industry. Until late 2009, information about
brokers, even those who have been banned from selling securities because of
criminal and outrageous behavior, was removed from public viewing after they
had been out of the securities business for two years. This was the norm even
though FINRA encouraged investors to use public Web sites to check out
brokers. The federal government had the good sense to address the issue, and the
records of such bad brokers are now permanently public. However, many
brokers banned from the securities business have surfaced in the spate of recent
frauds and Ponzi schemes that have cost investors billions of dollars.
The FBI and Congress have finally taken notice. The 2008 stock market
collapse exposed so many schemes that the FBI in 2009 began a new investment
fraud investigation for every day of the year.
“High yield investment fraud schemes have many variations, all of which are
characterized by offers of low risk investments, guaranteeing an unusually high
rate of return,” testified Kevin Perkins, assistant director of the FBI, before the
Senate Judiciary Committee in December 2009. He explained that the crimes
weren’t complicated. “Victims are enticed by the prospect of easy money and a
fast turnaround.”
The financial serial killer’s ability to make investors hand over their money is
a key to fueling such frauds, Perkins noted: “The most common form of these
frauds is the Ponzi scheme, which is named after early twentieth-century
criminal Charles Ponzi. These schemes use money collected from new victims,
rather than profits from an underlying business venture, to pay the high rates of
return promised to earlier investors. This arrangement gives investors the
impression there is a legitimate, money-making enterprise behind the fraudster’s
story; but in reality, unwitting investors are the only source of funding.”
“As the financial crisis expanded, drying up investment funds and causing
investors to begin seeking returns of their principal, investment fraud schemes
began to unravel.” The number of investment frauds was staggering, Perkins told
Congress. In the fiscal year 2009, the FBI saw a 105 percent increase in new
high-yield investment fraud investigations when compared to 2008 (314 versus
154, and many had losses exceeding $100 million). “Many of the Ponzi scheme
investigations have an international nexus and have affected thousands of
victims,” Perkins said.
Yes, 2009 was indeed a rough year for Ponzi schemers. The recession
unraveled nearly four times as many of the investment scams as fell apart in
2008, with “Ponzi” becoming a buzzword again thanks to the collapse of
Madoff’s $50 billion plot.
Tens of thousands of investors, some of them losing their life savings,
watched more than $16.5 billion disappear like smoke in 2009, according to an
Associated Press analysis of scams in all fifty states.
While the dollar figure was lower than in 2008, that’s only because Madoff—
who pleaded guilty in 2009 and is serving a 150-year prison sentence—was
arrested in December 2008 and didn’t count toward 2009’s total.
While enforcement efforts have ramped up in large part because of the
discovery of Madoff’s fraud, the main reason so many Ponzi schemes have come
to light is clear.
“The financial meltdown has resulted in the exposure of numerous fraudulent
schemes that otherwise might have gone undetected for a longer period of time,”