PDA

View Full Version : Is such a scheme possible?



jaus tail
05-29-2014, 09:14 PM
Hello everyone,

I was reading a novel where, three guys bought a land and made a resort over there. Now they wanted to resort to fail, and not do well, so they could file for bankrupt and earn lots of money?

So they purposely do bad publicity and create scandal around resort so it fails.

Is such a scheme possible in real life where if I own something, I can win lots of money if that thing fails?

I know one can do it with insurance but can one insure a piece of land? The novel only mentioned a scheme to go bankrupt.

Can one do it in real life where you bet that a scheme will fail and earn money?

Lil
05-29-2014, 09:20 PM
The Producers

You have investors who have "bought" ten times the value of the resort. It fails and they lose their investment. It's sitting in your mattress, of course.

Hoplite
05-29-2014, 09:22 PM
There is a play/movie called "The Producers" where the protagonists do something like that. If I recall correctly, they swindled a bunch of investors to give them the money to produce a play, of which they cut lots of corners to pocket the money. Hence, they wanted the play to fail so that they wouldn't have to payback the investors any profits.

I suppose that situation could happen in real life, granted there isn't any legal clause prohibiting it. (i.e. investors receive initial investment back despite net gain/loss).

But to file bankruptcy? I don't think so. As I know it bankruptcy is used to stop creditors from taking a firm's assets and is the first step to letting a fiscal judge sort out who gets what.

Hoplite
05-29-2014, 09:22 PM
The Producers

You have investors who have "bought" ten times the value of the resort. It fails and they lose their investment. It's sitting in your mattress, of course.

Ah! You beat me to it!

jeffo
05-29-2014, 09:23 PM
Sure. Just get lots of lines of credit, buy lots of stuff, get cash, then declare bankruptcy so you don't have to pay back any of the loans.

In reality, the resort doesn't even really have to do poorly to follow this plan, it just helps and makes it easier.

jaus tail
05-29-2014, 09:27 PM
But wouldn't the investors beat me for selling a flop resort? I mean if I buy something from someone, I expect it to give me quality.

Like if I sell you a defective car, wouldn't you sue me for it?

Hoplite
05-29-2014, 09:30 PM
But wouldn't the investors beat me for selling a flop resort? I mean if I buy something from someone, I expect it to give me quality.

Like if I sell you a defective car, wouldn't you sue me for it?

You tell the investors that for reasons beyond your control the resort was a failure (e.g. "How was I supposed to know it was built on a graveyard and all the rooms were haunted?"). That might protect you from lawsuits.

Also, depending on the contract signed, you buy a car from me it's your due diligence to inspect the car before making the purchase. It's not my fault you didn't look under the hood to make sure there was an engine in there. It's slimy, unethical, but legal.

King Neptune
05-29-2014, 09:36 PM
But wouldn't the investors beat me for selling a flop resort? I mean if I buy something from someone, I expect it to give me quality.

Like if I sell you a defective car, wouldn't you sue me for it?

Yes, you could expect to be sued by all of the investors. Your net would be after suits, legal fees, and fines (if a prosecutor decided to pursue the matter).

Or, if you set things up properly, then you could disappear and spend the proceeds in some obscure place while living under an assumed name. I think that this has been done, but there are many possibilities.

wendymarlowe
05-29-2014, 09:41 PM
This is also the scheme in Ayn Rand's "The Fountainhead" - developers create a resort and hire the main character as the architect. They intended the resort to fail, but the main character's design is SO amazing that people flock to the resort anyway. It unexpectedly succeeds, only to immediately go bankrupt because the developers owe way more than 100% of the proceeds to their many "investors."

stephenf
05-29-2014, 10:10 PM
Back in the sixties , in England , there were a number builders that were able to convince some local councils to knock down large parts of their city and build blocks of flats . When it was discover that the flats were not fit for humans to live in . The builders had all gone bankrupt and retired to Spain. In the end the issue was corruption and some people did end up in prison. But if the backers were investors, I guess they would of taken the loss.

jeffo
05-29-2014, 10:13 PM
Re: getting sued -- that's the point of bankruptcy! Bankruptcy is actually "bankruptcy protection" which means the courts protect you from your creditors. Usually, the way the bankruptcy works is that the court divides up all your assets and gives what is there to the creditors, then tells the creditors that's all they get, go away. They cannot sue you because that's what the bankruptcy specifically protects you against.

jaus tail
05-29-2014, 10:21 PM
This is also the scheme in Ayn Rand's "The Fountainhead" - developers create a resort and hire the main character as the architect. They intended the resort to fail, but the main character's design is SO amazing that people flock to the resort anyway. It unexpectedly succeeds, only to immediately go bankrupt because the developers owe way more than 100% of the proceeds to their many "investors."

Now I get it. They owe the "proceeds" and not the invested amount. So if the resort works, I'll have to give the profit to the investor, which is why I'd want it to go flop, so I don't have to give any profit.

Thanks.

Bing Z
05-29-2014, 11:41 PM
Another possibility is the crooks are startup professionals. They create an attractive business plan, gather inverters to pay for the project. They build everything, receiving sidekicks or otherwise make good money from generous land procurement, very expensive construction and setup. When the resort is ready to run, they've already earned their shares. They care not whether the resort will make profit or not. Their next step is another business plan and some other investors.

But these people don't have to file for bankruptcy. If the business runs well (surprise!), lucky investors. If the business fails, poor investors.

cbenoi1
05-30-2014, 01:07 AM
http://en.wikipedia.org/wiki/List_of_confidence_tricks

-cb

wendymarlowe
06-01-2014, 11:19 PM
Now I get it. They owe the "proceeds" and not the invested amount. So if the resort works, I'll have to give the profit to the investor, which is why I'd want it to go flop, so I don't have to give any profit.

Thanks.

To be more specific, you'd have to file for bankruptcy to discharge your debts to the investors. That would normally mean dividing up your assets and selling everything off. However, if you were smart and moved the money somewhere else first (offshore or "reinvested" it or whatever), there would be no way for them to chase it down.

It's part of the reason small business owners are smart to incorporate their businesses - if someone sues their company for millions and the company goes bankrupt, the litigants can't then go and take the owner's house. If the business isn't incorporated, it's all fair game (except for a few very specific exceptions).

Once!
06-02-2014, 11:21 AM
Scooby Doo?

Bufty
06-02-2014, 02:47 PM
It's basically finding whom you consider to be suckers and convincing them to buy from you what you know is worth far less than they are paying you.

Whether or not what you sell them eventually turns out to be worth anything or not is of no concern to you.

If the suckers catch up with you and beat your head in - serves you right.

If the Law catches up with you and you end up in prison - serves you right.