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Updrifting
04-16-2014, 07:09 PM
Hi all - I'm setting up an antagonist in my third manuscript to be a blue-blood, New York exec who just doesn't feel he's getting enough when he compares his multimillion dollar bonuses to those of his colleagues. So he's gonna set up a sham mutual fund and sucker a few unsuspecting rich people to buy in, and then funnel the money somewhere for his personal use.

I've read about the big-name criminals who've been caught doing this sort of thing in recent years, but I don't know how they managed to set up their schemes in the first place and then function within them for any length of time so that the money could, in fact, be illegally gotten. And while I have enough of an idea to create a skeleton, I'm on the hunt for some flesh, or realistic details to beef up the back story.

So. My questions are:

1. What are some realistic scenarios my nefarious bad guy could concoct to bilk his friends out of big chunks of cash?

2. How would he be (cleverly) caught/discovered by officials?

3. What might be a detail that could out him, one that may not be obvious to a non-official but would be to someone in the know? I have a character I want to fall unwittingly into danger over something she sees, like a fake prospectus? Or reads in an email - something suggestive but not outright damning, so my bad guy doesn't know if he's in trouble or not but becomes worried enough to go after the woman who saw this questionable thing.

Would love to get ideas from y'all, and you have my sincere thanks for considering my nonsense when you have your own work to ride herd on!

King Neptune
04-16-2014, 07:47 PM
1. Read up on Bernie Madoff. He collected a fair chunk of change from people; some of whom should have really wondered.
2&3. Also look at Madoff. Your character could be the one writing the fake statements, and she could decide to go to the SEC.or a prosecutor. Or finalizing the statements from rough drafts, and she could see the real account activity.

I don't know if anyone has written the complete book yet, but that is an interesting story as far as I've read.

A number of his associates were convicted recently, and they may have stories to tell. One was a secretary who claimed she never knew anything about the scheme.

http://www.forbes.com/2008/12/12/madoff-ponzi-hedge-pf-ii-in_rl_1212croesus_inl.html
http://www.theguardian.com/books/2010/sep/26/bernard-madoff-believers-financial-scam-books
http://money.howstuffworks.com/ponzi-scheme5.htm
Ripped Off: Madoff and the Scamming of America
appears to be a movie made about running a Ponzi scheme.

Bing Z
04-16-2014, 11:50 PM
An executive who is in a capacity to create a fund (eg, a notable hedge fund manager, an exec at an investment bank) is often prohibited from doing so for himself, ie, he can create a fund for his company but not for himself. He may even have a non-compete clause in his contract that will last a few months to a couple of years after he quits.

Thus chances are your bad guy has quit his employment to create this Ponzi scheme. Does this work for your story? If not you may want to look at how he scams his own company (easier, less risky, lots of examples, even NYU's president is accused of creating lux residence for his son (http://nypost.com/2014/04/16/nyu-scion-scored-spacious-faculty-apartment-during-housing-squeeze/).)

I agree with King Neptune that Madoff is the best recent case study.


--- Dramatized version of what's gonna happen ---

Bob Gnitfirdpu calls friend: I've quit Blackstone and am partnering some friends to create a fund specializing in distressed debts. Are you interested?

Friend (jumps up and down): Finally. As you know, Bob, you're the best leverage strategist around. Your fund is going to rulez. Of course I'm in. I'm cutting you a two-million-dollar check now.

So Bobuses the investment moneys from his 30 friends and buys a new coop, another Ferrari, and a holiday house in Spain. He keeps, let's say, 20% of the money to pay for dividends. He recruits new money to pay for dividends & his spending.

A few week later, Bob calls his friend again: Bad news. We've only made twenty percent profit. I've just sent you your dividend check.

Friend: It's okay. Fucking bear is in charge. You're the only dude making money. So any new plan?

Bob Gnitfirdpu: Yeah, I'm opening up a leveraged buyout house.

Friend (jumps up and down): Finally!!! And what a timing!!! Your firm will outdo KKR. Sure, count me in. I'm writing you a five-million-dollar check!!!

---Three years later---
Mysterious woman calls friend: I've bad news for you.

Friend (jumps up and down): I remember your voice. You're Bob's accountant. Every time you called me, I got a fat check. So what's new?

Woman: Actually I'm not his accountant. I was a middle school dropout. For fuck's sake I can't even spell from A to Z. I'd been Bob's mistress.

Friend: But you've been cutting me the checks!!!

Woman: Yeah, but no more. Bob's dumped me. Mother fucking asshole. Well, he's been screwing me. Okay, I'm screwing him. I've called the cops and the feds. You ain't getting no more fat checks. You ain't getting any checks. You've been scammed. You're an idiot. *clicks*

Updrifting
04-17-2014, 05:45 AM
Thank you, King Neptune and Bing Z- The links are great, and the dramatization is tres amusing. I'll dig into this some more - got a referral from a family member to talk tomorrow to a guy who spent his career ferreting out international money launderers! Should be a real eye opener.

Let me know if I can help anyone else out there brainstorm, since I deeply appreciate the advice.

wendymarlowe
04-17-2014, 06:07 AM
The main component of almost all scams of this type is that the person at the top keeps it looking like there's lots of money to be had, usually by taking in lots of new money and using to pay earlier investors. The earlier investors assume their money is earning interest (or dividends or whatever), but it's actually gone and they're just being paid with the next guy's dollar. The scam invariably collapses when the person at the top runs out of "next guys" to sucker in, and all of a sudden there's no money to provide cover anymore.

Not exactly what you're looking for, but here's an amusing scam which has actually had some success over the years:

1) Fake Investment Broker sends out letters/emails to 16,000 people, giving a "free stock tip." In half of them, he says Stock A is going up; in the other half he says Stock A is going down.

2) Once Stock A either goes up or down, Fake Investment Broker concentrates only on the half he got it "right" for. He sends them another letter/email, detailing Stock B. For 8000 of them he says it's on the rise, for the other 8000 he says it's on the decline. He completely ignores the people to whom he sent the wrong prediction.

3) Repeat for Stock C, Stock D, and Stock E for 4000, 2000, and 1000 people respectively.

4) Contact the 500 people who are left. "Hey, guys, I got FIVE IN A ROW right. Obviously I know what I'm doing. Come invest your money with me!"

Updrifting
04-17-2014, 03:39 PM
Love it. Thank you, Wendy!

King Neptune
04-17-2014, 04:00 PM
You might also read up on the case of Charles Ponzi. Ponzi had no intention of scamming anyone; he had a real investment strategy that did work, but so many people sent so much money that he couldn't do much with it, so the revolving door started.

Wilde_at_heart
04-17-2014, 07:01 PM
How big are we talking? Millions, or a few hundred thousand, and how many people?



So. My questions are:

1. What are some realistic scenarios my nefarious bad guy could concoct to bilk his friends out of big chunks of cash? Mining company with fake drill results - read up on Bre-X. Penny stock manipulation - he buys shares in some dodgy tech or pharmaceutical company that trades on the OTC-BB or Pink sheets where there's little regulatory oversight, or a fairly cheap stock on a larger exchange, but one that's not well-known, then convinces his friends it's 'the hottest stock' and when they pile in, he sells or even shorts.

2. How would he be (cleverly) caught/discovered by officials? If one of his 'friends' figures out the scheme and rats him out.

3. What might be a detail that could out him, one that may not be obvious to a non-official but would be to someone in the know? I have a character I want to fall unwittingly into danger over something she sees, like a fake prospectus? Or reads in an email - something suggestive but not outright damning, so my bad guy doesn't know if he's in trouble or not but becomes worried enough to go after the woman who saw this questionable thing. If you try my penny stock idea, volume changes alone through, say, another shell company or something could be enough

Would love to get ideas from y'all, and you have my sincere thanks for considering my nonsense when you have your own work to ride herd on!

I'm not a lawyer, but I did spend nearly a decade in a company that dealt with company disclosure regulations, regulatory compliance, etc.

As for fake prospectuses, that would depend entirely on how you set up your characters. If they aren't that diligent at first, it would be very easy to fake, and yes, they could later compare it to what they find on EDGAR (or SEDAR if you opt for Canadian stocks - when the Vancouver Stock Exchange was around, Forbes called it 'scam capital') and see that it doesn't match up.

As for something 'damning' - it could be as simple as a single analyst's report. Read up on the company Sino-Forest, which was outed as scammy by an analyst (and traded on the Toronto stock exchange and the Nasdaq iirc).

Mark Chanos spotted Enron being a sham well before it collapsed as well.

King Neptune
04-17-2014, 11:36 PM
It used to be that with fewer than 100 customers almost all reporting requirements could be avoided. I believe that was one thing that Madoff took advantage of. If a manager is not making reports to a regulating agency, then all sorts of funny business can go on. I haven't followed those regulations recently, so there might be some reporting requirements now.

Unfortunately, there is a cap of $1,000,000 per year.
http://www.seclaw.com/docs/pplace.htm
As I recall it, people got around that by having many entities, one per customer, and each entity could handle its million.

Justin K
04-17-2014, 11:55 PM
I'm pretty sure I watched a documentary about this. The thing that kept the people investing money was that they would receive official looking "statements" of their accounts and the interest earned, and most of the time there was an actual "business" office in some remote area of some obscure country to legitimize the operation. Most people gave large chunks of money so that they could make ends meet on only the interest, so it wasn't until someone got suspicious about not being able to withdraw their balance that it collapsed. High interest rates are one of many trademarks of the scams. The scammer can use invested money to send out "dividends" which is actually just the original money invested so that they can 1) get more investments from those already suckered in and 2) buy time to find more suckers.