Friday, June 11, 2010

A Bad Portent

As gold rises, and certain gold stocks become hot (if only intermittently), the fraudsters come in like the proverbial flies to honey. The fraud that was recently busted was a fairly simple one, except in mechanics, as described by the article "Fools' Gold: Six Charged in $300 Million Ponzi Scheme." The miscreants charged in the scheme allegedly did little except take the money.
At seminars, investors were told they could earn 18 to 36 percent annual returns by investing in various companies, with their investments fully collateralized by gold. The companies, the SEC said, were shells owned or controlled by [Milowe Allen] Brost or [Gary Allen] Sorenson.

Investor funds often were transferred through numerous bank accounts as far away as Asia, Europe and South America, before returning as “interest payments” to investors -- and personally enrich Brost, Sorenson and others involved in the scheme.

“Brost and Sorenson orchestrated a complex, far-reaching fraud disguised by a labyrinth of companies and foreign bank accounts they used to hide their misconduct from investors and law enforcement,” said Donald M. Hoerl, Director of the SEC’s Denver Regional Office.

It's best to always remember the Markopolos rule: if an investment strategy can't be reverse-engineered, then there's something wrong; avoid.

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