The Scammer

He is found everywhere, he was spawned by evolution itself, but nowhere is he so prevalent as in the financial markets.

The low level retail scammer targets the ignorant and the desperate, the lumpenproletariat living in quiet desperation and looking for a way out.

The more ambitious scammers such as Bernie Madoff go for bigger fish, who may have more money but may be just as easily fooled.

The scammer usually leads an extravagant lifestyle and is not shy of flaunting his gains. Indeed that is part of his sales pitch –  the greedy and the needy are attracted to the honey pot he has created for himself. If he has planes, trains and automobiles then that surely proves the worth of the useless (or, worse, sometimes fraudulent) product or service he is selling.

Or perhaps he is not a scammer at all. He is just promoting something which may be less useful than the promotion materials suggest.

The only way to avoid being stung by the scammer (or the legitimate seller of products you may not find helpful) is to do your due diligence and not set foot in unfamiliar territory.

I have been amused by scammers for many years. The are all shits and slimy salesmen but in their defense, scamming in one form or another is at the heart of capitalist society.

Happily I am not often scammed in the financial markets but it happens. And I have had some near misses.

I well recall being telephoned by an ex partner in a prestigious private bank and regaled with tales of fabulous returns to be had on third world debt guaranteed by the Fed.

As a lawyer, I telephoned the legal department of the Federal Reserve and left an inquiry.  My call was returned that same evening telling me that the fraud was a common one and was often found doing the rounds in Switzerland.

I remember another occasion when I was introduced to a sidekick of the Finance Minister of some rather large banana republic. I was living in Switzerland at the time and was often approached by this sort of contact.

I had a number of meetings in Zurich, surrounded by finance officials in a room guarded by men with guns.

Apparently these guys in the MinFin could get hold of Government Bonds direct at a large discount to market. Could I offload $5,000,000 worth of bonds a day and remit most of the discount to a different account?

Yes, I could, I told them. Provided I had a clean legal opinion from the state’s lawyers and provided I could take the bonds in Euroclear, cash against delivery.

I can’t quite recall what happened on the legal opinion – I think they were prepared to botch something up. But the real joke came when they wanted to deliver not to Euroclear but in the form of physical bond certificates. Yeah, right, that’ll make it really easy to deal the bonds out in the market. No possible chance of fraud.

And then of course, the thousands of petty scammers and legitimate salesmen out there. The vendors of useless (or at least not useful) trading systems, advice, dud hedge funds, wottevva.  Scams may not be crimes – they may just be slick sales schemes selling something which you would be better to avoid.

I well remember buying a trading system some 20 years ago from some shark who intimated that he was one of the famous Turtles recruited by Richard Dennis and William Eckhardt. He was selling the Turtle System. What turned up, for $600, was clearly not the Turtle System and the snakeoil salesman was clearly not an experienced or knowledgeable trader.

Again, if you have the experience, a little investigation will soon reveal the plot.

Trouble is, most people don’t and are sucked in by greed or desperation. Some of these scams are not necessarily illegal – some of them are merely unethical.  Some of them may not even be unethical – they may simply not work as the vendor intended. Or thought. Or perhaps you need special skills to really benefit from the product, which you don’t have.

You can not call something you can not get to work a “scam” and it is certainly not illegal. Nonetheless if you have paid for it you will wish you could get your money back.

Some schemes of course are blatant fraud like Maddoff’s ponzi scheme.  But perhaps these are in the minority.

Imagine being that poor woman living on a pittance in a trailer park when The Wolf of Wall Street calls.  Or the bloke who sold me the faux Turtle system.

It happens all too often and always will.