Fraud:
1. deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage.
2. a particular instance of such deceit or trickery: mail fraud; election frauds.
3. any deception, trickery, or humbug: That diet book is a fraud and a waste of time.
4. a person who makes deceitful pretenses; sham; poseur.
Although today was beautiful with clear blue skies and cool breezes, I’m dismayed at the progress about nothing. I kept repeating mentally how I hate them all and that they are pretty much good as dead to me. I and so many unaware people have been affected by TPTB. This is includes the mortgage meltdown, the energy crisis, the food scares, the wars and of course the 9/11 event. Anything presented by ‘the network’ thus far has been full of deceits and lies.
I’ve been researching online this morning and came across three government websites containing useful articles to assist those interested in learning about how to spot various frauds and how to report any potential leads for further investigation: FBI, IRS and United States Treasury. These ‘entities’ exist for the purpose of protecting ‘us’ from ‘them’. But I learned that there is no legal recourse when both the governments and businesses are in cahoots with each other.
From around 11:03PM yesterday to 12:26AM today, I had a little black fly with red eyes buzzing around my workstation. It landed on the computer screen, walked around the top and on speakers and took off over my head. It landed again on the computer screen and sat on top of the bottom bar to the word document entitled ‘Highlights of Various Frauds’. It buzzed off somewhere. Later on, the little fly came back. This time it walked around on top of an email print-out dated Monday, August 28, 2006 1:21PM about ‘AMNESTY INTER’L’, hopped on top of ‘Mark’s’ blue orgonite piece with ‘Del Monte’ etched upside down and then buzzed away again. It never came back.
I know this little black fly (the size of three letters here) with some green around its chest is one of my ‘watchers’. ‘They’ know I am very upset at some other ‘entities’ that continue to hold me literally hostage, imprisoned by my goodness to fulfill my oath and promises. By the length of time it takes to suffer under the current administration and with the assumption of helping some fellow brothers out of my ignorance, I feel the below article highlights my greatest tick in this current lifetime by those who dick with ‘moi’. Enjoy!
External source: [http://www.pcpages.com/swissgnome/Various_Frauds.htm]
Highlights of Various Frauds
Many otherwise experienced investors hesitate to step out into the offshore world. They have heard all the stories of fraud and lost fortunes, phony banks, and fake companies. They worry that, without the protections offered by the regulatory agencies and familiar legal systems of their home country, they will fall prey to international con men. This chapter looks at the dark side of international investing to see if it’s as scary as it seems.
There is no harm in such an investigation. Honest businessmen, whether in Barbados or Boston, won’t object to having their credentials checked. We’ll also look at domestic businesses and their official protectors to see how effective these agencies are at eliminating fraud.
THE BANK OF SARK
In 1968, Phil Wilson, who was an experienced “paperhanger” (bad-paper passer), decided that it was time to go into the banking business. He may have been trying to make a political statement about the evils of fractional reserve banking, or perhaps he was just trying to make a little money. In any case, he carried the concept of fractional reserve banking a little too far.
Wilson opened the Bank of Sark on the Island of Guernsey. He named it after the Island of Sark, one of Guernsey’s neighbours in the Channel Islands. These islands off the French coast are administratively part of Great Britain but have a great deal of local autonomy. They have long been popular tax havens and Phil Wilson chose Guernsey because it was so easy to incorporate a company there. He printed up some nice-looking bank stationery, (cashier’s checks, certificates, and letters of credit), and drew up a balance sheet listing the bank’s assets as US$ 72.5 million. Dr. Samuei J. Wilkinson, Sr., who claimed to be a certified public accountant in Nassau, wrote a letter certifying that he had examined the records of the band and that the balance sheet was correct. Wilson also obtained a telex, a telephone, a small office, and a listing in Polk’s Bank Directory.
Thus equipped, he was able to wholesale large numbers of worthless documents to his friends in the paper-hanging profession. They would pass this official-looking paper in banks throughout the US and try various ruses to get the banks to advance some cash. The paper was also used by other confidence men to puff up the assets of their own shady financial operations throughout the world.
All in all, the bad paper was used to obtain US$ 40 million from other banks and financial institutions during the four years that the Bank of Sark was in operation – a very high return on investment. The fraud went on for so long because Wilson’s agent on Guernsey had a host of form letters that he used to stall the bank’s creditors. Also, banks were reluctant to admit that they had been taken and did not publicise the problem.
MORE BAD PAPER
Phil Wilson was doing wholesale what thousands of lesser crooks do on a more limited bases every day. Securities are stolen, counterfeited, or fraudulently produced. They are then used as collateral for loans of sold to legitimate banks and brokerage houses. Organised crime is active in the business and profits can be high.
Securities can be stolen directly, in which case their useful life is limited because they quickly appear on a hot list of stolen securities. With the help of an insider at a brokerage house, securities can be taken and not reported as stolen for a month or so. This makes them highly marketable during that time. Counterfeit copies of blue chip stocks are always a popular item because there are so many genuine copies in circulation. Fraudulent paper of various sorts, like that produced by the Bank of Sark, has the advantage of being difficult to identify as fraudulent. Stolen securities may not stand up to a close physical examination but with so many financial institutions in the world, it may take years to establish that a particular bank is a pure fraud.
NON-EXISTENT INVESTMENTS
This is the pure kind of scan. The criminal separates the victim from his cash with a promise of riches from a fabulous investment. The only problem is that the investment does not exist. The forms that the investments can take are limited only by the con man’s imagination. The collapse of Bullion Reserve of North America (BRNA) sent shock waves through the hard-money investment community. Alon Saxon, the president of BRNA, killed himself on September 26, 1983, and his company filed for bankruptcy on October 3rd. Missing were US$ 60 million worth of investors’ assets that were supposed to have been sitting in BRNA’s vault in the form of gold bullion.
BRNA had become one of the biggest bullion dealers in the country because of its ads that promised gold at 3-1/2 percent over the spot price and free storage. Apparently, most of the investors’ funds were not used to purchase gold at all but were used for other investments. The impact of this collapse was magnified because almost the exact same thing had happened earlier in the year with the International Gold Bullion Exchange.
These cases demonstrate the extent to which many people rely completely on faith for their investments. Variations on this theme appear frequently on both the domestic and international investment scenes. There are crooked real estate deals and phoney companies appearing all the time. Foreign investors have lost lots of money in American real estate investment schemes. These frauds trace their lineage back to such traditional cons as the sale of (swamp) land in Florida and of glass as diamond. The sucker is led to believe that he is receiving something for his money, when all he is actually getting is the con artist’s fantasy. His eye is on the gold but all he gets is the gleam.
PYRAMID FRAUDS
Most popular frauds involve a pyramid in which the early investors are paid fabulous rates of return from newly invested funds so that other investors will be encouraged by good word-of-mouth. When the plan begins to fall apart because there are to many investors demanding payments, the organiser absconds with everything he can grab.
A certain amount of American offshore investment activity has been encouraged by a famous pyramid fraud called Social Security. This scheme has milked Americans out of billions of dollars over the years and now provides the biennial entertainment as politicians scramble to save an unsavable system. The Social Security system is actuarial nonsense. Early retirees are paid much more on average than the total sum of the contributions could have provided by actual investments. They get their money from the taxes of the then-large number of active workers. By now, the ratio between recipients and taxpayers is such that the system will run into chronic cash shortages even with the new increased taxes. For more examples, see the descriptions of famous financial pyramids in the book Extraordinary Popular Delusions and the Madness of Crowds.
FRONT MONEY SCAMS
A person looking for money to borrow may notice the ads offering quick financing at competitive rates. The ads imply that even people with shaky balance sheets can be helped. Unfortunately, the ad will turn out to be a front money scam in which the operator hopes to bilk the victim out of a “loan origination fee” for a loan that never materialises. The ads are aimed at the financially strapped who have given up on conventional financing. Those who place the ads hope that desperation will blind potential borrowers to the risk of loss. The technique works like this. A person or organisation is offered a loan of say, US$ 100 million, at substantially below the going rate. Why the low cost? “Because it is Arab money and a good Moslem cannot accept an interest rate beyond a certain limit”. Or, “It’s Nazi money and we’re getting it out and cannot disclose the source. Or, It’s Mafia money and has to stay under wraps”.
Well, to back up a bit, approximately 99 percent of all Saudi funds are either in certificates of deposit at prime banks or in US government securities. Nazi money was handled during the war by the Swiss banks and still is. And as far as the Mafia goes, it’s a well-known fact that Meyer Lansky’s trustee on Paradise Island in Nassau was a prominent prime Canadian bank. The conclusion is obvious – all of these sources deal with only prime lending institutions. They own their own banks in many cases and have controlling interests in commercial banks around the world. In short, they don’t need you.
What will always come up sooner or later in the scam scheme is the question of front money. This can be in the form of cash requested to supposedly pay off a go-between or to smooth the way with a bank official who will be finalising the arrangements. With amounts like US$ 100 million at stake, a US$ 5,000 front fee might not seem unreasonable – until the con artist has skipped town with it.
The victim may, on the other hand, be told that the deal is all set to go but that the agent must first fly to Zurich, (first class of course), to make sure that all banking arrangements are in order. The cost of the ticket and first-class hotel accommodations comes to US$ 5,000, which is to be advanced by you. If this same story is told to 40 gullible souls, the amount in question is not trifling by any means – US$ 195,000 tax free.
The ticket to Zurich is again nothing but front money. Perhaps the largest area[s] of scam operation in the financial area are the front – fee scams, which are a bit more disguised than simply a trip to Europe. Many years ago, the schemes were primarily the bailiwick of loan sharks, gamblers, and other Mafia types. Clients were told that they would receive their loans, but that they first had to put up a few thousand to be able to approach and pay off the well – known and formidable lenders so the funds would be expedited. Of course, the front fee would disappear along with the so – called go – between, and the legitimate businessman or businesswoman was so mortified by having thought he or she could get the funds from such a source to begin with, that they would not even bother to report the fraud to the authorities. Another variation of the same scheme is telling the client that his money will be coming from XYZ Saving Loan, and that because of the amount and nature of the loan involved, a certain amount has to be advanced to pay off someone on the local committee to finalize the arrangements. Again the money is advanced, but when the loan itself does not materialize, the client cannot report it because he has already been implicated in an attempted illegal act. Prosecution rarely follows in a scam such as this.
Whereas in the past these scams were hidden in the nether world of the Mafia and fairly obvious illegal channels, they have now become much more sophisticated and complex. As a result, some of the largest banks in the world have been stung, along with some of the largest borrowers in the world. It seems to be partly a result of how dismal things have been getting financially in the last 10 years, along with how sophisticated scam artists have become. Those with a criminal bent have used the complexity of the international banking world to develop all sorts of plans that have the appearance of legality, but are so complex that many fairly sophisticated souls do not fully understand them and can’t judge their legitimacy or fraudulence.
Perhaps the longest lasting front money scam is the one that has provided the livelihood of a Belgium family for generations. The scheme involves offering loans that are designed no to be approved. The client is presented with a complicated loan application package. Buried in the paperwork is a provision that allows the lender to demand a prime bank guarantee of principal and interest.
On Friday afternoon at 2:00, the lender then tells the prospective borrower that his US$ 5 million loan has been approved and will be funded as soon as he can provide all the documentation required by the loan application. The lender adds that there will be a blockage fee of one percent (1%) payable immediately, because the loan funds are being set aside over the weekend. The lender then collects the US$ 50,000 fee. On Monday, of course, the lender says, “Where is the prime bank guarantee.” If the borrower could get a prime bank guarantee, he could have borrowed the money from the prime bank in the first place at a lower rate of interest. The lender has just made US$ 50,000 for a few hours work. This scam has been worked over and over again.
SELF-COLLATERALIZING LOANS
A person in the business of offering loans to the public will probably be approached sooner or later by a con artist offering this sort of deal. He will say that he is an agent for a man who needs a large business loan, say US$10 million. The loan will be secured by Treasury securities maturing in 10 years with a face value of US$20 million. The securities will be Fed – wired to the lender and he will want to make arrangements to complete the transaction in a single day. His principal will also, he says, want to strip the coupons from the bonds to establish a “sinking fund” to pay off the loan when it comes due or to use the funds for another investment. He will say that the loan is secure because the face value of the bonds covers it.
What he is trying to get the lender to do is to ignore the time value of the money. What he intends to do is to use the loan to purchase the bonds that are to be used to secure it and then strip half the value from the bonds by removing the coupons. In this era of electronic money, the con man is hoping that you will not notice the theft. US$10 million ten years from now is not the same thing as US$10 million today. If the bonds were real, rather than bits of computer data, the lender would notice the loss more easily. But today’s electronic money market can cause the unwary to overlook the substance of a proposed transaction. A person can avoid this trickery by always keeping the time value of money and the importance of full collateral in mind.
The operator who is pulling this particular scam probably doesn’t expect it to come off too often, but he may be operating a front – money scam on his principal, holding out the hope of free money from a lender to obtain expenses for traveling around the country. There must be some profit in the game because sharp operators keep on trying to pull it off.
SECRET KNOWLEDGE
This scam is an ancient con that has been updated recently. A con artist will buy a list of large – portfolio individual investors with perhaps 60,000 names on it. He will send out a letter to the mailing list offering a stock recommendation service. To catch the interest of the investor, he will give his first few tips away for free. He will have some story of how he has special knowledge that allows him to pick winners.
In the past it was a “network of insiders maintained at great expense in large corporations” or, perhaps, an astrologer. “At first I didn’t believe Madame X could pick winners either, but seeing is believing.” Nowadays the operator may claim to be conducting electronic surveillance of the inner circles of large corporations (the Watergate Ploy) or to have a line to an “insider in one of New Yourk’s largest law firms”. Perhaps the investment advisor will focus on merger and takeover candidates, claiming some secret way of calling them before they happen.
What he has, however, is no secret knowledge. He recommends a stock that he knows to be volatile. The current merger mania provides plenty of those. Then he tells half of his mailing list that the stock is going up and half that it is going down. Then, after a strong stock price movement happens, he divides his list in half. He does a second mailing – repeating the process with a new stock – to the 30,000 people he gave the right advice to the first time. He splits the list once more and gives a new pick to the 15,000 investors he has rightly advised twice already. After this third mailing, he has a list of 7,500 names that have seen him provide three correct predictions. Many of them will be receptive to his offer to sell them his fourth prediction for several hundred dollars. He can keep splitting the list for quite some time. It is possible to make hundreds of thousands of dollars from this con with almost no effort or risk. Unfortunately, many otherwise reputable securities and commodities brokers do this all of the time. Consider for a moment, which of the many funds which your broker manages will he show you last year performance record? The ten that went up or the ten that went down?
REGULATORY AGENCIES
Actually, the individual investor is better able to avoid the problems caused by crooks than is a large public corporation. Individuals have a direct and immediate concern about how their money is being safeguarded. They have the incentive to thoroughly investigate before they make a business deal with. They are often forced to try and collect funds for their depositors, based on bad paper. The depositors, of course, want to draw against the uncollected funds right away. The institution may accept the risk of the bad paper to satisfy an important customer. There is also less of a guarantee that the institution’s funds will be well cared for. The quality of employees varies. Since they are dealing with “other people’s money”, they may not take as much care as the private investor dealing with his own funds.
CAVEAT EMPTOR ET CAVEAT VENDOR
The rules of protecting oneself in the international money game are simple. All that needs to be done is to make sure they are always applied and that one doesn’t allow one’s enthusiasm for a particular deal to carry one away.
International business is just like any other business. It is a community built upon trust. When that trust is violated, the violation makes news because everyone is interested in the reputations of other people that they may someday have to deal with.
Offshore business is the business of reputation. Most of the financial institution and brokers in the offshore world are selling little other than their reputations for honesty and service. Experienced investors know who has established a history of trustworthy operations; they also know who the real crooks [are] that fleece investors and institutions alike. One of the first things that one learns, if one does business in the offshore world, is how to judge the credentials of those one deals with.
The first rule of the potential investor is to know who he is dealing with. If he has not met this person before, he must check the person out. He must not allow himself to be deceived by an outward display of success. This can be faked. He must get references and check them out, requiring independent references to be provided. He must check on the reputation of the person or institution with other people that he knows and take his time in the investigation. There are many deals available in the world and there will be just as many available tomorrow. Many familiar institutions in the offshore world will be able to assist such an investigation. Every prime bank in the United States has a Caribbean subsidiary. All of the normal credit rating services exist in the international realm.
The investor must use the same tools to establish the bona fides of potential clients that he would use at home. He does not have to avoid dealing with strangers – after all, when he first enters the international investment community, everyone will be a stranger to him. All that is needed is to make sure proper security has been obtained when dealing with strangers.
Any deal, no matter how bizarre, can be transformed into a rock-solid business proposition by good collateral. In fact, it is an old joke among lenders that, if someone comes to them asking for an impossible rate on a loan, they may say, “Fine, we’ll give you an 8 percent loan but we’ll need a compensating balance of 110 percent of the principal deposited in one of our accounts paying 6 percent.”
Use that approach only when a customer is refusing to answer important questions about the deal he is offering.
A good approach is to pick the people that one wants to deal with, instead of giving into someone else’s sales pitch. Be the initiator of the relationship. Choose instead of waiting to be chosen. The investor knows best what he wants.
The second rule is for the investor to know what he is getting into before he commits himself. He should not commit resources to investments that he does not understand. If he is not sure just what is being done with his money, he is not in a position to protect it. There are many good, simple investments in the domestic and the international financial worlds. If a person is not willing or able to follow a complex series of financial manoeuvres, then he must leave his investments in simpler forms. One doesn’t have to be a genius to be a successful international investor, but one must be willing to take some time to familiarise oneself with what one is getting into.
Many con games are based on confusing complexity. The operators of these frauds are counting on the laziness of their intended victims. It is easy to lull some people to sleep with large amounts of impressive detail. The reader mustn’t let himself become one of these victims. It may be best to approach someone selling a particular investment, rather than the other way around. If the potential investor finds that he knows more about the investment than the person he approached, perhaps he doesn’t need him. The salesman’s money is not at stake after all; the investor’s is. Perhaps one should only invest when one knows more than the person selling the investment.
The third rule is to know the other party’s motives. The investor should ask himself, why am I being offered this deal? What’s in it for the other party? Know the classic sign of fraud – someone offering something for nothing. When one walks down the street, one sometimes finds money just lying there to be picked up. Unless one has assumed the burdens of public employment, one has to work to earn the money one wants.
If someone is offering a deal that seems to good to be true, check it out very closely. If someone seems to be selling something on impossibly thin profit margins, like the Bullion Reserve of North America discussed earlier, it may be that he sees his profit in the substance of the victim’s investment funds. If the deal being offered is so fantastic, why isn’t the sales company or the salesman just buying it himself instead of sweating to sell it to a third party? Why is the borrower with the fabulous collateral coming to the offshore banker for a loan instead of going to a major lender?
The con artist hopes that a person’s greed will overcome his caution. Don’t go through with a deal until all questions have been answered. A good solid deal will stand close examination and the balance of benefit between the seller and the buyer will be clear. The price will also be in line with similar investments or other investments of similar risk. The highly competitive nature of the world financial community guarantees that. If something is way out of line, avoid it. There are plenty of investment opportunities to choose from. With proper care, any investor will never have to experience the pain of having been taken.
The fourth rule is for the businessman to know himself and to be aware of his strengths and weaknesses. In this way, he won’t get in over his head. If he knows that he has low sales resistance, for example, then he should not expose himself to high-pressure sales tactics. He should do his investing or other business transactions by mail. An unsophisticated investor should stick to simple transactions until he increases his understanding. If he is timid about asking tough questions and making sure that the answers are provided, then he should probably not be in the international money game at all.
Copyright © 2008 by Fluffy von der Flynn. All rights reserved.