How to Not Fall Prey to Bernie Madoffs and the likes

Of White Collar Crimes and Moody’s Red Flags

Most Filipinos are desensitized when you talk about white collar crime.  They think it will never happen to them, but I feel that stories written below such as Denver’s Wayde McKelvy who ran a “Green” Ponzi Scheme ala Bernie Madoff is something that isn’t as far from home as one may think.  While most Filipinos probably do not have a global portfolio, I’m sure there’s a percentage of you who are looking into investing in Asian markets.  Guess what?  Moody’s recently wrote an article in WSJ that there are 61 companies that are under their investigation for corruption and fraud.  (Normally, the prices have already been in downtrends for the technician to uncover, so this isn’t much of a surprise, but more of an explanation after the fact. )

What’s an investor to do?  How can one succesfully create their path to financial independence, when there are so many crooks in this business?

Perhaps understanding the cons’ psyche will do the trick.

James Carlson writes in a writeup about Wayde McKelvy:The Biggest Green Scam in America.  It’s an engaging read primarily because you get the story told from the Ponzi schemer’s point of view, with the author only providing narratives and backgrounds.

At first look, McKelvy, (you’d think) could never have been able to pull off such a multimillion dollar white collar crime.  His hedonistic lifestyle, spending 20 thousand bucks on booze and hookers in motel rooms would have probably raised many red flags, not to mention a 250 thousand dollar pink diamond ring that he flips and parades to investors as probably selling it to the likes of Jennifer Lopez. Talk about utter “confidence” and feeling of -omni-presence in parading all his excess! You’d think the Charlie-sheen like attitude, the Venetian bootcamps (They held their investor meetings in casinos) would have nerved investors.

Yet, the reality is he managed to swindle people with around $40 Mil worth.  Even my own outspoken swinging dick couldn’t hang with that guy!  Boy, I must learn how to raise funds like he does. haha.

Kidding aside, as a mathematician and somewhat wannabe-behavioral scientist, I looked for clues as to why we, humans, are naturally drawn to find ourselves in Bernie Madoff settings, so that we may become wiser and not fall prey to such kinds of people.

Beware: It’s More Common Than You Think

Multimillion dollar white-collar scams are as American as apple pie. -Madoff has become the infamous face of financial-market malfeasance nationwide. (His heist amounted to $17 Bil)  – James Carlson

Problems with Most Investors (And What You Should Avoid Yourself from becoming):

Ponzi Schemers are terribly good in understanding their target market’s weaknesses, and they capitalize on it.  Here’s what they know mostly about you.

1.) The Infinite Returns Allure– Most Ponzi victims believe that they can get rich through the markets. Ponzi Schemers capitalize on that “fantasy”. The belief that the markets will bring me wealth of astronomical proportions, and instant gratification is what sucks most people in.  Perhaps Mark Twain would have served them more wisdom.  Remember the return of your capital, rather than the returns on your capital.

2.) Averaging Down isn’t merely in the markets but applies in life-

I love Chinese proverbs and there was a time that I heard from a kungfu film say something like “A wrong can’t be corrected with another wrong.”  Two wrongs don’t make a right.  When one is in the middle of a problem, the only way to get out of it is to face it and to bite the bullet.  Most Ponzi Schemers don’t operate that way.  As Romero, Wayde’s accomplice says “The bigger things get, the harder Wayde crashes.”  Ponzi schemes work in fooling myriads of people.  They leverage on their big pool of “investors”.  They know fully well that there’s no turning back, and they’ll do anything they can to make sure that their lies will be filled with more lies, until all the lies become truth.

3.) Stocks Are Stories and Ponzi Schemers Are VERY GOOD Snake Oil Salesmen.

I thought about calling ponzi schemers as idea merchants, however, I feel snake oil salesmen is better since it suits their evil trappings.  Most Ponzi victims believe in stories.  In fact, in McKelvy’s scam, investors felt really good in handing out their money to McKelvy.  Audience members lined up to give video testimonials. “It’s been a mind-blowing experience,” one said. Another exclaimed, “I’m, like, having to take sleeping pills because I can’t sleep at night! Because I am so excited about what they’re talking about in our investment opportunities!”

4.) Ponzi Schemers feel that you deserve all your losses

If you think they ever felt remorse for taking your money, well they don’t.  As far as white collar crime goes, it’s just normal business.  They sneer and laugh at your face as they take away those hard-earned money.  Spoken by McKelvy himself in the interview:

Not to sound like an asshole, I think it’s time Americans start taking some responsibility. I get that from my ex-wife now. Everything bad in her life is my fault.

5.) Ponzi Schemers normally hangout and have shady businesses

McKelvy is also known as “The Brashman” who owns a pornsite of transsexuals and fake breasts.

All in all, stocks are stories.  If you’re investing in stories without earnings as proofs, you better be sure that you’re just trading them for the short term (whether they be mutual fund investments, investments with friends or whatever Ponzi-Scheme like endeavors that you guys are getting yourselves into.)

White Collar Crime has never been hotter these days, at least my girlfriend thinks Neal Caffrey to be so.

-The Faceless Trader


About Abc

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