Flawed set-up creates money scandals
Scandals and scams! Suddenly they’re rocking the staid world of money management. First there was the RT Capital mess, which securities regulators believe was just the tip of that particular iceberg. No one in the business, absolutely no one, thinks that high closings were an idea dreamed up by the folks over at RT and that nobody else was doing it.
Whether any other cases will come to light remains to be seen but one thing is sure-any managers and traders who were doing a bit of this type of manipulation are hunkering down. They know that if anyone is caught going forward, the penalties are going to be a lot tougher than they were in the RT case.
Morality vs. legality
Then Transamerica Life revealed there had been some serious hanky-panky going on with units of an international fund they had recently acquired from ING. Seems that some employees were taking advantage of the time difference between the pricing of fund units (it’s based in Luxembourg) and the closing prices on Nasdaq to line their own pockets at the expense of unitholders. Firings and reprimands all around.
Interestingly, no one is yet sure that what the employees were doi was illegal. Immoral certainly. But whether they technically broke any laws is another matter.
This doesn’t seem to fall under the definition of insider trading. The nature of the fund, the Nasdaq closings, the daily unit pricing, all these were public information. Theoretically, anybody who studied the fund’s make-up carefully could have done the same thing – and maybe they did.
The real fault appears to be in the flawed structure of the fund itself. And there are others that are set up in a similar way that will undoubtedly be the subject of intense scrutiny in the coming days.
Big Bank scam
While we’re on the subject of scams, the biggest one going on these days has received virtually no publicity. It’s been running for at least a couple of years and is well known to securities regulators. But there has hardly been a word about it in the media.
It’s the Big Bank Scam and it works something like this:
You’re approached by what appears to be a credible business person and told about an international loan fund that is operated by the world’s major banks. Private investors aren’t allowed; this is institutional business and the price of admission is $250 million.
The money is used to provide short-term financing for top-grade companies or clients who need cash to close deals, as surety, or whatever. As a result, the money can be put out at high rates of interest and is always repaid within a short period of time.
Big returns promised
The story goes that a syndicate has been formed to participate in this pool and that you’re being given an opportunity to take part. You have to put up a substantial amount of money – the sum is tailored to your perceived worth. Your payback will be about 18 to 20 per cent annualized. Because of the nature of this financial pool, your money is absolutely safe.
(There are variations which promise returns up to 100 per cent, but most people with the kind of wealth that’s being sought here would tend to become suspicious at that. An 18 to 20 per cent return seems much more plausible.)
You’ll receive a package containing all kinds of very official looking papers and a contract to sign. This is quite a sophisticated scam.
Once you’ve paid your money, you may even receive interest cheques for a time. That’s because the whole thing is a Ponzi scheme. More people are brought in and some of their money is used to make payments to the early investors to keep them content for a while. Then, when the promoters feel they have milked this particular venture for everything they can get, they, and the rest of the money, simply vanish.
As I said, the provincial securities commissions are well aware of this racket and regard it as the number one financial fraud that’s operating right now. But they don’t seem to have caught anyone yet. So beware. Remember the old adage: “If it sounds too good to be true, it probably is.”
From Gordon Pape’s Internet Wealth Builder