Scam Protection

by | Dec 19, 2008 | Multi Currency Investing

2008 has been the easiest year I ave every seen to lose money honestly….but with a scam like this we can learn that everyone needs scam protection!

Thomas Fischer just sent Jyske Global Asset Management’s latest update whihc said:

The week started with another financial scandal shaking an already nervous market. The New York financier Bernard Madoff admitted having run a “ponzi scheme” (pay-outs funded with cash from new investors) generating a fraud of $50bn. Many funds of hedge funds and banks have invested in Mr. Madoff’s hedge fund. The fraud could result in a new wave of hedge fund withdrawals.

On Tuesday the Fed reduced its target interest rate to a record low between zero and 0.25%. This unconventional easing supports last week’s commitment from the Fed to purchase mortgage-related assets. Effectively the Fed has shifted emphasis away from the target rate as its primary means of implementing monetary easing in favor of giving liquidity directly to the market by buying bonds (quantitative easing). The goal is to get the credit market to move again, unlocking the liquidity trap of banks unwilling to lend money.

Wednesday the Central Bank in Norway also cut the key policy rate significantly by 1.75%-point to 3%. It’s a remarkable move as Norway is an oil-rich nation with fiscal room for maneuver unlike many other countries. Despite this, Norway has decided to cushion the economy with a noticeable monetary easing – a move emphasizing the dramatic track towards recession we now see in many countries.

This week we saw all the turmoil in the currency markets. The dollar which had begun to weaken last week went into a tailspin as investors dumped the currency on concerns about the Fed easing. The dollar dropped from 1.3375 last Friday to 1.4700 yesterday, a move of almost 10%. Today the dollar has bounced back and is trading at 1.3950, a move of 5% in just 24 hours. It’s the Wild West these days in the currency markets.

Our currency positions taken last week were stopped out today at our predetermined “take profits” and we had a 9.3% profit in our Danish kroner position and 3.7% in the Yen position. Our leveraged portfolios also had an extra profit as we had increased the Dollar funding. Now we are back in Swiss franc funding with a two-week profit of 10.5%.

This is good news markets seem to be regrouping.

Yet amidst the existing currency turmoil we must ask the question…how can someone run a 50 BILLION dollar scam?  FIFTY BILLION!

Those ripped off were not yokels ether. Look at this list of institutions that internet news says  lost a Billion of more.  I am excluding a host of banks and huge investors who lost hundreds of millions.

Spain’s Banco Santander, which owns Abbey and Alliance and Leicester, said its hedge fund unit invested nearly 4 Billion of client funds with Bernard Madoff.

Fairfield Greenwich Group  invested $7.5 Billion.

GMAC chairman Jacob Ezra Merkin’s Ascot Partners  invested most of its $1.8 Billion.

HSBC is reported by the Financial Times to have a potential exposure of about One Billion dollas.

Kingate Management Ltd  invested $3.5 Billion dollars.

Billions? 50 Billion.  How can these institions and large sophisticated investors with all their attorneys and accountanst and advisors so badly miss the mark?

The lesson is that we mere mortals have to aways be alert.  There are some really bad people out there and we cannot ust hand over our resonsibility to ayone…not even our bank or financial advisor. Let them be advisros. Let the sare ideas with tyou…but know n the end it is your money… your life and your future.

Be canny. Be smart. Be careful because everyone…even the biggest, can make errors.

For example, the news stated Nomura Holdings, Japan’s largest brokerage, said it has 27.5 Billion yen ($302 million dollars) of its clients money at risk.   What will those clients have to do to get their money back…if they can.

Here are some steps you can take to ptect yourself from scams.

These ideas come from the excellent book “Cleaning Up” by Barry Minkow. Minkow offers a way to escape one of the most serious investing problems we face.

Minkow was a boy wonder businessman who started his own cleaning business while in high school at age 16.  By the time he gradated from school at age 18 he had nearly a hundred employees. Then he built the cleaning business to over 1,000 staff, took the company public and raised tens of millions of dollars before he could legally drink. By his 21st birthday he had a Ferrari, a mansion and the value of his business shares was 24 million dollars.

Yet like Madoff’s business, Minlow’s cleaning business was a total fraud, a huge Ponzi scheme (tiny compared to Madoff…but still millions were defrauded)..

Minko was immature and lost money from the start. When the bubble burst his wealth not only dissolved, but investors lost 26 million bucks. He was sentenced to 25 years in jail and 26 million dollars in restitution. He lost everything, his house, his car and his freedom.

Barry’s transformation in jail, his parole and reentry into the world as a Christian minister, seven years later and the obstacles he faced tell a compelling tale.  He shares some very important lesson on how t spot fraud.

These lessons from his cleaning business begin in high school when Barry discovered that the in crowd had one of three things, good looks (he says he was no Brad Pitt), to be good in some sport (he was not) or to have money and a great car (his was a beat up Buick).

His downfall began early when upon forming his cleaning business he was (at age 16) sent a Diners Club card. Word spread quickly that Barry had a credit card and loved to invite lots of people to nice restaurants. His popularity soared and he learned what he thought was a valuable truth about people, “money imputed respect” and his doom!

From this point Minkow was hooked on debt. He begged, borrowed, then lied and stole just to stay ahead of his mounting losses and loans until they finally overwhelmed him five years later. This was not cleaning up in business!

Barry’s story does not end there. After jail, a divorce, another failed business, plus pressures in his ministry and the rebuilding of his credibility tell an interesting tale. Minkow came to realize that his problems, before and after jail, were caused by trying to please a society of people with shallow values (money imputes respect).

Minko’s story is about the quest for the Three Ps, Position, Possessions and Popularity.  This tale shows how this pursuit in his cleaning business ruined his health and wealth.

We in the West are indoctrinated on these 3 Ps. They form the foundations of too many lives and are precursors for stress, tension and poor health as well as financial doom. These structural flaws create a template for self slavery and a potential failure that we see all the time. We voluntarily become chained to our desk or jobs and are willing to even cheat (ranging from small fibs on loan applications to doctoring Enron books) to gain position, possession and popularity.


Barry Minkow also shares how to use the 3 Ts (Transparency, Truth plus Time) to create the Ultimate Fourth T, Trust.

This lesson alone makes Cleaning Up worth reading, but there is much more you will gain about cleaning up in business and all of life in this fun, easy to read story of a smart man who bares his inner self to light the road he followed from being cunning to becoming wise. The minute we realize that “but for the grace of God there goes I” this book becomes a great primer of success guidelines.

Minkow gives several warnings and tips that can help you spot a con.

Fraud Avoidance Tip#1: Just checking out history and size is not enough!

Minkow provesd the fact in his first chapter. He works for the Fraud Discovery Institute and recently was asked to check out the Financial Advisory Consultant Mutual Fund. This fund had been around for 20 years, had over $800 million under management and had averaged 38.8% per annum growth over the two decades.

He did his due diligence and discovered the longest running Ponzi scheme in American history that is known. Due to a report filed in 2003 by Minkow to the State of California and the Federal government, both began investigating this fund. Eventually the fraud was shut down. Investors lost $400 million.  (Now we know there was one much worse ut tere…Madoff).

When he first looked at that fund it had history, size, a long list of satisfied investors one could refer to and some very slick brochures.

Minkow saw three red flags that worried him; Control by one person,
no audited financial statements to support the very high returns earned in a low return environment and  all the new investors relied upon current investors to decide to enter the fund.

Here other fraud avoidance tips.
Fraud Avoidance Tip#2: Look for independent proof of profitability. In Minkow’s discovery, there were no proper nouns, no names in the brochures. The language was ambiguous like “In May of 2002 we bought a large laundry company and sold it for 2.9% profit for the month.” Never in any of these purported sales did the brochure name a company that was bought or sold so that these profits could be independently verified.

Fraud Avoidance Tip#3: Look to see if the owner of the fund has the licenses one would expect.  In Minkow’s case the owner needed Series 7, Series 66, registration with NASD and California Department of Corporations.  He had none. The company it turned out was only filed as a DBA. This 20 year old, $800 million mutual fund was not even incorporated!

Fraud Avoidance Tip#4: Check records.  The fund Minkow investigated claimed to make its money in three ways- buying and reselling businesses, insurance premium financing and equipment leasing. Minkow called experts in these fields. In the insurance premium area he discovered that such high returns just were not possible plus any such lender would have to have a license to make such loans, called PfCs. He checked this as well and found again no record of any such license.

Fraud Avoidance Tip#5: See for yourself.  Minkow visited the offices and discovered that it housed a staff of five people. This seemed quite small for a fund with three divisions managing $800 million.

When you look at any investment or business deal give it the following 11 step test.

Fraud Test #1:  Look for independent proof of profitability. Find out how the business claims to has been making profits and investigate the actual transactions that have been said to have taken place. Do not accept excuses for not letting the profits be seen. A scam artist will say the deals are confidential or something of this nature. Just say bull! No proof – no deal.

Fraud Test #2: Do not let the fact that someone else has received big profits, even for years, suck you in.

Fraud Test #3: Ignore the media or star studded cast that may be involved. Often the media and professional athletes, celebrities, politicians and church deacons etc. are innocent victims as well.

Fraud Test #4: Look for signs of hidden debt. Regular payments to a person or company who is not performing a service is a clue.

Fraud Test #5: Especially beware of special offers to get you act quickly. This can be a sign that the scam artist is in special need of quick cash.

Fraud Test #6: Do not let outward appearances be your guide. The first rule of lying is, “never take your eyes off face. Do not break eye contact”. The best con artists are the nicest people on the surface. Expensive cars, big houses, yachts and even private planes are not a guarantee of success. Do not let the appearance of normalcy fool you. Realize that almost no white collar criminal who goes to jail ever plans on being there. Most start with good intentions, make an error and cheat to cover up. Almost all believe that there is a cure so if they can just hang on everything will be okay. Most frauds are not committed by criminals but by people just like you and me who get caught in an unexpected circumstance and are just trying to cover up and hang on.

Fraud Test #7: Check out the use of funds carefully. The dishonest person will always have a reason why he needs the extra cash, but an in-depth review will show that the need does not make sense.

Fraud Test #8: Do not trust even audited accounts. Minkow for example had an employee who created fake invoices from suppliers who did not exist, reconciled phony bank accounts and formed a false company to confirm to auditors that information was correct. Minkow now trains CPAs to spot fraud and warns them that during confirmations they should not just accept a letter from a company that confirms a certain sales figure, or balance etc. but to go the extra mile and make sure that the company that confirms the letter actually exists. Few auditors do this.

Fraud Test #9: Beware of wealth claims based on the value of stock. The value of shares in a phony company can be very unreal.

Fraud Test #10: Know that the Better Business Bureau does not audit accounts that are sent to them. They accept the data that a business sends them at face value. BBB, Dunn & Bradstreet nor bank references should be accepted as proof of anything.

Fraud Test #11: Check with experts in the field that the profits claimed seem reasonable based on industry standards.

Take these steps when you invest.  You’ll reduce your chances of losing and increase your potential for profit.

There are no guarantees in life, business or investing, but prudence diligence AND DIVERSIFICATION helps assure that your losses will be honest and you chances of profits  greatly increased.

To learn more about diversification  and to check on current Jyske risk profiles, US investors should contact JGAM Thomas Fischer at

Non US investors contact Jyske Bank Rene Mathys at

Until next message good global investing.


Join Merri, me and Peter Laub of Jyske Global Asset Management at OUR INTERNATIONAL INVESTING & BUSINESS COURSE IN ECUADOR. We review economic conditions, Ecuador real estate, my entire portfolio plus investing and business ideas for the months ahead.

Feb. 9-11 Beyond Logic.

Feb. 13-15 International Business & Investing Made EZ
Feb. 16-17 Imbabura Real Estate Tour

Better still join us all year in Ecuador! See our entire schedule of 27 courses, tours, mingos and expeditions we’ll conduct in 2009 and learn how to attend them FREE.