Another Ponzi scheme exposed in Fraud Lauterdale

Yep, another Ponzi has been exposed. Though not quite in Madoff's league, it is still a big one at $1.2 billion. One Scott Rothstein created a large 70-lawyer law firm in Florida where he used the scheme to buy influence. According to news reports, he made generous donations to political campaigns, owned "hundreds" of cars, homes, jewelry, watches and businesses. He used the faux wealth to hobnob with politicians, sports celebrities and support an extravagant lifestyle. When discovered, he got on a private jet and fled to Morrocco with $500,000 in cash after wiring $16 million to Casablanca.

Do Ads Like This Really Work?

Over the holiday weekend, I caught a Dodge commercial on TV. It happened to be from one Melloy Dodge in Albuquerque, New Mexico. It was your typical car commercial with a loud announcer's voiceover highlighting the unusual and amazing (always "amazing"!) deals on new cars. You better hurry or you'll miss the special deal.

This particular commercial was advertising a full 80% off MSRP! To be honest, that 80% figure is the only reason the commercial caught my attention as I am thoroughly immune to stupid commercials. How could that be? Was Melloy going out of business? Even if they were, no new car is ever 80% off unless it's a scam, like say a stolen or flooded vehicle.

It didn't take long to hear it was indeed a scam. The particular foul? You may have already guessed- "MSRP" had a special definition just for this commercial. Instead of the standard "manufacturer's suggested retail price" to which everyone is accustomed, they slipped in their fabricated definition of "manufacturer's suggested retail profit". I nearly spit out my coffee at the audacity. Yet one wonders, does such blatant nonsense work as a marketing gimmick? Is there anyone who actually thought this was a real deal?

Personally, I try hard not to do business with people or companies that operate this way.

Data Security at Financial Institutions

Would someone please explain the security procedures that banks and other financial institutions implement? I happen to run into a "verification process" quite frequently. This normally entails answering a series of questions. You know, questions like "what city did you get married in?" or "what is the first name of your paternal grandfather?" There seems to be about 15 standard questions used by financial institutions, not all of which are used by each. My problem with these has to do with a lack of understanding exactly how they are supposed to protect me.

Extended Warranties

At one point I intended to do a post about extended warranties. You know when you walk into Best Buy, Future Shop, or Circuit City (in nómine patris et fílii et spíritus sancti) and finally settle on a DVD player or laptop and then the sales guy does everything but threaten a loved one with grievous injury unless you buy an extended warranty. Yeah. Those things. I've always been highly skeptical of their value. The desperation with which sales people push them and the occasional spiteful service you get when you refuse the warranty further adds to my skepticism.

Fraud Central- Don't invest with skinny dippers

I am fond of quoting Warren Buffett, so get used to it. He once said something you have probably read here in the past that goes "You only find out who is swimming naked when the tide goes out". By this he is referring to business models that can't swim when the water gets rough. It also applies to frauds. As we discussed at length, Madoff's scheme unfolded when too many people wanted their money at the same time.

Madoff News

By now you have probably heard the name Harry Markopolis. Mr. Markopolis is the investor who repeatedly tried to get the SEC to investigate Madoff over at least a ten year period. Obviously, it was a fruitless effort. That didn't stop Harry from telling collegues and associates to steer clear of Madoff though. One such investor who placed $1.5 billion of clients' money with Madoff was Theirry de La Villehuchet, cofounder of Access International Advisors, a French money manager. Mr. de La Villehuchet sadly took his own life days after the Madoff fraud was discovered.

Time to Retire Ben and Borden, Grant and King?

One of the problems, post Christmas, is having one or more hundred dollar bills in your wallet. This is the traditional Christmas gift in my family, from elder to younger. My dad hands me a $100 bill. My mother hands me a $100 bill. When my grandparents were alive that meant another couple $100 bills. I have one nephew which means I take one of the $100 bills given to me and simply pass it down to my nephew. I don't even bother anymore to put it in a new Christmas card for my nephew. I simply remove the bill from my mother's card, issue the customary mock surprise and real gratitude, and then put it in my pocket. Next day when I see my nephew, I just take it out of my pocket and hand it to my nephew. My nephew, being 17 years old, does not at all mind the lack of the personal touch.

Blaming the Victim

I was chatting with a former regulator and he opened my eyes to an important perspective, so I am going to backpedal a little today. Admittedly, many have been harsh on those who gave money to Madoff for ignoring red flags and being suckered by the phenomenal "too good to be true" returns.

Madoff Update

Due to size and shock of this story, it has been all over the web and papers. The Wall Street Journal has an entire page devoted to it. This scandal is every bit as shocking and disruptive as Enron was. Because so much information is becoming available, I see no need to repeat everything the WSJ is reporting (visit their page, the source of the facts below). Instead, I'd like to summarize a few new facts and add a few questions of my own.

Madoff's Ponzi continued

The story just keeps getting more outrageous. The two senior employees who questioned Madoff and uncovered the fraud happen to be his sons. They then turned him in. Imagine their horror at discovering the almost 50-year old family business was a complete fraud? (That assumes they weren't part of it.)

"All just one big lie"

I am utterly shocked at this moment. Really. Though the details are few at this time, it appears Bernard Madoff was arrested today in a $50 billion Ponzi scheme. Madoff started a securities firm in 1960 and grew it by being innovative in the broker-dealer business. Some of his innovations were quite controversial at the time.