THE BIZOP NEWS

Kindle Price Drop

2009-07-09T15:36:29Z

As an abstract fan, as they are not available in Canda, of the Kindle, this looks pretty neat.

Amazon is excited to announce that Kindle: Amazon's 6" Wireless Reading Device (Latest Generation) is now only $299.

With this exciting new low price, summer reading just got a lot more fun!

Sleek and lightweight, Kindle is as thin as a typical magazine and holds over 1,500 books. An advanced display reads like real paper and boasts 16 shades of gray for clear text and crisp images.

The Kindle Store now has over 300,000 books, magazines, newspapers, and blogs. With an advanced 3G wireless connection on your Kindle, you can start reading books in less than 60 seconds.

Is the $100 Savings enough for you to buy Kindle: Amazon's 6" Wireless Reading Device (Latest Generation)

Google Begins Banning Google AdWords Scams

2009-07-09T15:24:55Z

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On July 1st, 2009, the FTC brought an action under Section 5 of the FTC Act, which bans Misleading Advertising, against Google Money Tree and others, as part of their

"law enforcement crackdown on scammers trying to take advantage of the economic downturn to bilk vulnerable consumers through a variety of schemes, such as promising non-existent jobs; promoting overhyped get-rich-quick plans, bogus government grants, and phony debt-reduction services; or putting unauthorized charges on consumers' credit or debit cards."

Noticably abscent in this FTC sweep was the usual collectin of vending machine, payphone and internet kiosks frauds.

The FTC's case against Google Money Tree, which I had written about several days ago, was discussed over at the seroundtable blog.

On June 29th we reported that the Google scams were getting worse.

In short, people have been promoting fake Google payout systems, such as Google Money Kit or Money System, along with dozens of other names, to convince people that Google is giving people a way to earn quick bucks. Google does have publisher programs like AdSense and other programs, but not these get rich quick scams.

One of the better comments on the Google Money Kit thread noted:

until Attorney Generals and the FTC crack down on the affiliates and the CPA networks, rather than just the original companies or individuals behind the offers, these fraudulent deceptive and misleading ads and websites will continue - as CPA affiliates and networks just shift their focus to the next offer...

Many CPA affiliate networks often encourage their affiliates to use fake blogs (flogs) /news sites, use fake testimonials etc - so it's not just a case of a few rogue affiliates but rather widespread acceptance of unethical and illegal methods within this sector of the affiliate marketing industry as "the norm".

But, in the mid 1990's, we saw the same thing with business opportunity ads appearing in the classified sections of newspapers. The ads were for biz op frauds, but the newspapers gladly accepted the revenue. There was never any attempt by the FTC or the Canadian Competition Bureau to charge the third party enablers.

Google, after the FTC brought their action against Google Money Tree, then prohibited people from using adwords to direct traffic to Google Money Tree.

But there was nothing proactive about Google's actions, which leads me to wonder how serious they are about enforcing their terms and conditions.

Customer shall not, and shall not authorize any party to: (a) generate automated, fraudulent or otherwise invalid impressions, inquiries, conversions, clicks or other actions;

(b) use any automated means or form of scraping or data extraction to access, query or otherwise collect Google advertising related information from any Program website or property except as expressly permitted by Google;

or (c) advertise anything illegal or engage in any illegal or fraudulent business practice.

Of course, Google cannot review every ad for every business opportunity. But, what they can do is make ensure compliance with the new FTC Business Opportunity Rule - don't accept ads for business opportunities unless the seller has a posted their compliance with the FTC.

Provident Royalties Ponzi

2009-07-07T18:47:00Z

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From the SEC Press Release on the Provident Royalties Ponzi

On July 2, 2009, the Securities and Exchange Commission obtained a temporary restraining order and emergency asset freeze in a $485 million offering fraud and Ponzi scheme orchestrated by Paul R. Melbye, Brendan W. Coughlin and Henry D. Harrison through a company they owned and controlled, Provident Royalties LLC. In addition to the asset freeze, the court has appointed a receiver to preserve and marshal assets for the benefit of investors.

The Commission alleges that from at least June 2006 through January 2009, Provident made a series of fraudulent offerings of preferred stock and limited partnership interests for the purpose of generating promised returns through investments in oil and gas assets.

The complaint alleges the sales were made through 21 affiliated entities to more than 7,700 investors throughout the United States.

It is also alleged that Provident Asset Management, LLC, an affiliated broker-dealer, made some direct retail sales of securities, but primarily solicited unaffiliated retail broker-dealers to enter into placement agreements for each offering, and those retail broker-dealers sold the stock to retail investors nationwide.

According to the Commission's complaint filed in U.S. District Court for the Northern District of Texas, Provident falsely promised yearly returns of up to 18 percent and misrepresented to investors that 85 percent of the funds raised through the offerings would be used to purchase interests in oil and gas real estate, leases, mineral rights, and interests, exploration and development.

The Commission alleges that, in fact, less than 50 percent of investor funds were used for their stated purpose, and the proceeds from later offerings were used to pay expenses related to earlier offerings and returns to investors in those offerings.

Illusion of Control

2009-07-07T14:59:19Z

"Why did so many people take their car instead of the plane after 9/11? The simple explanation is that, behind the wheel of your own automobile, it's natural to feel in control. Try telling drivers that they have no influence over the skills of other road users, the weather, the condition of the road, mechanical problems, or any other common causes of accidents - and they will agree. But they still feel in control of their destiny when they drive. They can't help it. Put them on a plane, and they think their life is in the hands of the airline pilot or, worse, a bunch of terrorists. Psychologists call this the "illusion of control."

This notion of "illusion of control" is relevant to anyone who wants to purchase a distributorship or franchise.

As Robin Hogarth, states above in the story about the lottery winner, we sometimes get lucky, get rich, and somehow believe that we were in control of the events that brought us riches.

Franchisors who are rich have the illusion of control, they believe that their perfected turnkey business systems are entirely responsible for their success.

It is important when reviewing a franchise system not to caught up with the equation rich = proven business system.

Here is the Dance with Chance website, with a number of short excerpts from their book.

FTC to Empirically Study Fraud - Finally!

2009-07-03T14:09:26Z

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The FTC has finally decided to start studying fraud and not simply rely upon the discredited notion of disclosure for prevention.

The FTC held a workshop earlier in the year about consumer fraud.

From that workshop, the FTC made a decision to try empirically understand the deterimanents of consumer fraud.

The [FTC] Commission has also conducted telephone surveys in 2003 and 2005 designed to measure the proportion of the U.S. adult population that has fallen victim to various consumer frauds.

Despite this,surprisingly little is known about what determines consumers' susceptibility to fraud.

For example, the 2003 and 2005 FTC Consumer Fraud surveys found that education was not a significant predictor of fraud victimization.

Understanding when and why people are vulnerable to fraud would better inform the FTC's substantial, ongoing efforts to fight fraud through law enforcement and consumer education.

Any additional insights into how and why people fall victim to fraud could also help improve any future fraud surveys the Commission may undertake.

The study announced in this notice is a preliminary and exploratory step toward facilitating those efforts.

The study is not intended to lead to enforcement actions; rather, study results may aid the FTC's efforts to better target its enforcement actions and consumer education initiatives, and improve future fraud surveys.

Economic and psychological experiments have identified several decision-making biases, such as impulsivity, over-confidence, overoptimism, and loss aversion, that can cause inaccurate assessments of the risks, costs, and benefits of various
choices.

FTC staff proposes to conduct an economic laboratory experiment to study whether these types of decision biases are related to consumer susceptibility to fraudulent or deceptive marketing claims.

Staff intends to study consumers' assessment of potentially deceptive advertisements, in addition to their assessment of non-deceptive advertisements.

Staff seeks to understand which characteristics of individuals and advertisements predict consumers' ability to differentiate between apparently fraudulent materials
and apparently legitimate materials.

The experiments that the FTC has chosen are not the ones I would have used. IN my years of dealing with victims of business opportunity and franchise fraud, two biases stood out: confirmation bias and anchoring. Confirmation bias ensured that the victims did not look for negative features, and anchoring on unrealistic earnings claims persuaded the victims that this was the real deal, even after they had "discounted" the earnings claims by a factor of 1/2 or 1/3, just to be safe.

Nor do I accept the premise that reliance on the heuristics, sometimes described as decision making biases, always leads to inaccurate risk assessments.

Some heuristics make us smart, and others are just errors of reasoning. It will be difficult to learn from laboratory results when reliance on heuristics enables consumer fraud, precisely because the con criminals use the same compliance techniques that legitimate marketeers employ.

Influence: Science and Practice (5th Edition), written by Robert Cialdini, makes this point very well.

"The underlying theory is that people tend to be hardwired to respond to certain stimuli in predictable ways. The book tells you what those stimuli are, that is, how to push people's buttons."

To prevent fraud, we need to: a) be able to identify these hardwired situations in advance, b) develop a potential response, and c) be able to practice our responses.

Some of this work was already started by Anthony Pratkanis, who gave an overview to the Senate Committee on Aging about telemarketing fraud:

"First, we have learned that the weapon that is used in fraud crimes is social influence.

No one knowingly gives their hard earned cash to a con criminal - they think that they are making an investment, winning a prize, providing for charity, or some similar positive goal.

The con criminal is a master at using one high-powered influence tactic after
another to sell a deception.

Given that the weapon in a fraud crime is an invisible one -
social influence as opposed to a gun or a knife - there is a tendency by both victims and observers not to recognize economic fraud for what it really is - a crime.

Recently, Doug Shadel and I analyzed over 250 undercover tapes used in fraud investigations.

In these tapes law enforcement took over a victim's phone line and then tape recorded the con criminal's pitch.

In listening to these tapes, we found that con criminals would play different roles - authorities, friends, even dependents - to create a platform of trust.

They would then use many well-established social influence tactics to sell the crime."

Finally, it is my experience that combating the cognitive dissonance that sets in when bad evidence is discovered about a business opportunity is the only sure way to minimize the effects of fraud.

FTC on Business Opportunity Fraud

2009-07-02T15:50:15Z

The FTC has produced a very good video about business opportunity fraud, the buying of a job with unrealistic earnings claims, with Jim Vitale explaining how he personally conned people.

Again, however the FTC is relying heavily upon written disclosure to defeat fraud. There is no evidence which supports this view. I have been dealing with the victims of business opportunity and franchise frauds for over 10 years, and the lack of written disclosure is not the problem. (Although, it gives the regulator a handy tool

The biggest problem is that the psychological process of wanting to believe in financial success at certain times will produce cognitive dissonance: evidence that business opportunity is fake will actually push people into making a bad investment decision quicker!

I call this phenomena: The light was red, when I drove through it.

You are not going to prevent people from making these errors, but you can reduce the pain of the error with a simple step: pay for the business opportunity with your credit card.

There are several advantages to purchasing a business opportunity with your credit card:

a. You may be able to charge back the purchase, when it is shown to be a business opportunity fraud.

b. You are limiting your downside by your credit room.

c. Often the biz op scammer won't be able to take a credit card, not having established the merchant's bond.

d. There is a downside: you will be paying a heavy interest rate.

Easy Google Profit Scam

2009-07-02T15:17:01Z

One of my simple tests for fraud is this: when a website offering a business opportunity gets more attention than the FTC's site, the business opportunity is very likely a fraud.

This particular scheme, also known as "Google Easy Profit" uses a number of different websites:

miamigazettenews .com The Miami Gazette News.
nyguardian .com (New York Guardian)
theatlantatribune .com (The Atlanta Tribune)
detroittribunenews .com/homejobs (Detroit Tribune News)
detroittribunenews .com/myspace-jobs (Myspace Job Scam)
philadelphia-herald .com (Philadelphia Herald News)
fresh-off-the-press .com/featured/jobs-working-online-home-gold-rush/

to pitch a long news like description of something called "Google Easy Profit".

The FTC just shut down a similar scheme, relying only on Section 5 of the FTC Act, on July 1st, 2009.

The FTC brought an action against Google Money Tree, alleging that:

its principals, and related entities allegedly misrepresented that they were affiliated with Google and lured consumers into divulging their financial account information by advertising a low-cost kit that they said would enable consumers to earn $100,000 in six months. They then failed to adequately disclose that the fee for the kit would trigger monthly charges of $72.21.

There are some similarities, and some differences between Google Money Tree and Google Easy Profit

There is the same 7 day trial period, and if you don't opt out in time, you will be charged approximately $80.00 on ongoing monthly basis;

The ads which lead you to the website have unjustified earnings claims, $4800 a week for part time work.

It is likely that the same abuse of the electronic payment system is going on because the company doesn't have a written pre-authorization for each monthly debit or charge.

The company states that it is not affiliated with Google, though why Google allows them to run these deceptive ads is beyond my comprehension.

There is the traditional disclaimer about earnings - earnings are not representative and the company suggests that you talk with a professional before purchasing their package.

There is no doubt that Easy Google Profit is a scam: see Google's own help page

From a legal perspective, the case against Google Money Tree is instructive.

The FTC simply asserted under Section 5(a) of the FTC Act that Google Money tree had engaged in deceptive marketing practices:

failing to disclose the material terms, that is the monthly fees;

making deceptive earnings claims;

and failing to disclose that they had no affiliation with Google.

My sense is that these allegations may be harder to prove against Easy Google Profit, and that the FTC may simply rely upon the Business Opportunity Rule, which requires that Easy Google Profit have a disclosure statement.

If this happens, all affiliate marketers who sell opportunities with earnings claims are going to have to be very careful and make sure that they have a disclosure statement and are complaint with all the US Business Opportunity laws. (Aaron Wall, of SEO Book, has a scathing overview of Google Easy Money and Google's involvement.)

The Michael Jackson Tributes

2009-06-28T20:28:41Z

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Stanton Peele has a good take on the Michael Jackson tributes:

"Some people, although revered in some respects, are more inconvenient alive. For example, when the mightily inconvenient Orson Welles returned to the U.S. to receive an honorary Academy Award in 1971, he hectored the audience for funding for his current work (Wells was persona non grata in Hollywood).

One member of the audience was heard to murmur, "We should have waited until he was dead to give him an award."

After Jackson's death, the tributes poured in from his legion of friends and fans - Liza Minnelli, Elizabeth Taylor (too choked up to comment), Quincy Jones ("I've lost my little brother"), Governor Schwarzenegger, President Obama - who even knew Jackson and Deepak Chopra were friends?

Released of their conflicted feelings over his corporeal presence, fans flocked into the streets, created shrines, and wrote love notes."

Even Tyler Cowen, an economist who I expect better analysis from, has jumped into the fray with his own Michael Jackson tribute.

Why are all of these people paying tribute, now and not then, to a man with clear mental health problems who hasn't performed in almost 20 years? What is social signal behind paying tribute to Michael Jackson? Most of individuals giving Michael Jackson tributes are simply forgetting or ignoring the broken human being Michael Jackson became.

However, the phenomena of a number of people testifying to "fact A" when there is ample evidence that contradicts fact A being true is the combination of social proof and cognitive dissonance, first made famous by Leon Festinger. In possibly Festinger's most telling observation, written up in "When Prophecy Fails", Festinger observed that it was hard to change a man with a conviction.

"What Festinger and his associates demonstrated in the end was that the failure of prophecy often has the opposite effect of what the average person might expect; the cult following often gets stronger and the members even more convinced of the truth of their actions and beliefs!"

When faced with the terrible fact that Mr. Jackson was no better than the average addict, addicted to pain killers, the cult of his "musical genius" had to grow to counteract the terrible truth. The Michael Jackson tributes are all the louder because in death he was shown to be a simple addict.

Is ACN a Pyramid Scam?

2009-06-25T13:22:30Z

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At the scam.com forum, there is considerable debate about whether ACN is a pyramid scam.

One poster cites, in support of his theory that ACN is an illegal pyramid scam, two Government announcements, one from Australia and the other from the Canadian Competition Bureau.

In the Australian Federal Court,

"On 15 November 2004 the ACCC instituted proceedings against Australian Communications Network Pty Ltd, a seller of telecommunications services, for alleged breaches of the pyramid selling scheme provisions of the Act.

On 23 March 2005 Justice Selway found that ACN participated in, promoted and induced or attempted to induce persons to take part in a pyramid selling scheme in contravention of section 65AAC of the Act, and that Mr Martin Paech, an ACN director, aided and abetted and was knowingly concerned in those contraventions.
The court also found that Mr Keith Janke and Mr Jonathon Gibbs, two ACN Independent Representatives, were knowingly concerned in and aided and abetted the contraventions, and Gibbschade Pty Ltd participated in the pyramid selling scheme, and attempted to induce other persons to participate in the scheme, in contravention of the Act."

And according to the Competition Bureau,

"The Competition Bureau alleges that ACN Canada, as it is known, and its participants, through its web sites and at public meetings, recruited new participants by exaggerating income expectations without disclosing the income of a typical participant. Under the Competition Act, it is illegal to make reference to earnings in a multi-level marketing plan without disclosing a typical participant's income. In addition, operators of a multi-level marketing plan must ensure that any income representation made by a participant in the plan includes disclosure of a typical participant's income."

There is a significant problem with relying on these two cases: the Australian Federal Court's decision was overturned, and the Competition Bureau's case did not survive the preliminary hearing. For the latter, you would have had to gone to Corey Lewis's website, a Manitoba Lawyer, to find this information out as it does not appear on the Competition Bureau's website.

I think that these decisions are probably correct, the deception in most modern MLM's relate to the level of average compensation, the number of drop-outs, and the losses that those drop-outs on average have sustained, concepts related to earnings claims. The usual criminal definition of a pyramid should by applied to concepts like Skybiz.

Notwithstanding that these cases no longer can be relied upon, a number of independent consumer watch sites continue to rely upon these two cases to show that ACN is a pyramid scam. For example, over at mlmwatchdog.com there is a report purporting to show that ACN is a pyramid scam - but it has not been updated to reflect the status of these two competition cases.

Does this mean that I think ACN is not employing deceptive marketing practices? Well, this commentator certainly believes that ACN is employing deceptive marketing practices.

But, my own view is that a proper analysis of ACN's marketing practices should start with the proposed 26 new deceptive marketing practices, proposed by the FTC in April, 2006.

Finally, tell me what you think about this product, ClickBank by Michael Jones.Click Here!Doesn't this sound too good to be true? This sounds again like a deceptive marketing practice - promising more than can be delivered. What do you say?

Advanced Money Management Ponzi

2009-06-25T02:11:12Z

From the SEC Press Release on Advanced Money Management Ponzi scheme:

The Securities and Exchange Commission today charged a Chula Vista, California resident and two entities he controls for operating a Ponzi-like scheme through five hedge funds.

The SEC alleges that Moises Pacheco, Advanced Money Management, Inc. (AMM), and Business Development & Consulting Co. (BD&C) raised $14.7 million from more than 200 investors over a 3½-year period, acting as investment advisers to the five self-described hedge funds -- AP Premium Value Funds I through IV and Capital Partnership Group. According to the SEC's complaint, Pacheco told investors that he had developed a lucrative investment strategy involving the purchase and sale of covered call options, and that the hedge funds exclusively relied upon this strategy to generate trading profits ranging from 30 percent to 48 percent per year.

In reality, Pacheco did not generate the returns he claimed to have made, and instead used investor principal to pay purported returns until the scheme collapsed.

According to the SEC's complaint, filed in U.S. District Court for the Southern District of California, the hedge funds generated trading profits of only about $367,000, but paid investors purported returns of more than $9.7 million.

The SEC alleges that the defendants thus operated a Ponzi-like scheme and further misused investor principal by transferring their money to Pacheco, entities under his control, or numerous third parties for reasons having nothing to do with the purported trading.

The SEC alleges that Pacheco claimed that the hedge funds had generated returns ranging from 2.5 to 4 percent per month during their existence, and continued to claim that they generated returns in that range until January 2008, when he reduced the returns to 1.25 percent per month.

Pacheco told fund investors that the reduction was due to deteriorating economic conditions.

Most fund investors live in the Chula Vista, California area, and know either Pacheco, one of his friends or family members, or another investor. The SEC alleges that Pacheco made no effort to determine whether the hedge fund investors were accredited or sophisticated, and did not provide investors with financial statements.

Neither Pacheco nor his entities have ever been registered with the SEC.

Regan Ponzi

2009-06-25T02:08:05Z

From the SEC Press Release on the Regan Ponzi scheme.

The Securities and Exchange Commission today charged Michael C. Regan (Regan) and his firm, Regan & Company (Regan & Co.), for conducting a multi-million dollar Ponzi scheme that touted safe investments and provided lofty, but false, investment returns.

The Commission alleges that from 2001 through April 2008, Regan and Regan & Co. fraudulently obtained at least $15.9 million and ultimately caused investors to lose at least $6.69 million through Regan's misappropriation and trading losses.

Regan and Regan & Co. have agreed to settle the Commission's charges, without admitting or denying the allegations.

The Commission's action, filed in the U.S. District Court for the Southern District of New York, alleges that over an eight year period Regan offered and sold securities in his now defunct investment fund, dubbed the River Stream Fund, by falsely representing to investors that he would invest their funds in the stock market.

Regan also represented that, because of his trading expertise and successful investment record, investors could expect annual returns averaging twenty percent, with minimal risk to their principal.

Contrary to his representations, Regan did no securities trading at all for several years, used less than half of the funds entrusted to him for trading purposes, and suffered substantial losses on investments that he did make.

Regan repeatedly concealed his misconduct and deceived investors by preparing and sending them fictitious account statements and tax forms showing artificially inflated balances and returns.

Instead of protecting the investors' principal and delivering the promised returns, Regan misappropriated and used millions of dollars of investor funds to support his extravagant lifestyle and to satisfy withdrawal requests from some investors.

Expecting the Wrong things From Regulators

2009-06-22T14:55:36Z

"How did alleged con man "Sir" Allen Stanford go from being a failed Texas fitness-club owner to becoming Antigua's in-your-face answer to Bernard Madoff?

And how did the feds fail to catch him for so long? Those are the questions tackled by veteran investigative reporter Bryan Burrough in an 8,000-word article available exclusively in the July issue of Vanity Fair."

This looks interesting, partly for the take on regulators that they don't need anymore legal powers to do their job.

But, I fear that there is again a simplistic notion that regulators are failing if they fail to prevent a Stanford or Madoff. This is a simple mistake - what a society cares about from a regulator is that when our individual irrationality and greed allows a Stanford, Madoff or Enron to morph into a collective crime, the regulator calms us all down, allows us to get on with our businesses which require trading on trust.

Modern commerce would fail if the skepticism needed to route out a Standford, Madoff or other con criminal were our routine pose at the marketplace. We simply need more trust that ordinary evidence would support for modern commerce which takes place at many arm's length.

The regulator depends upon complaints, and as long as the marks aren't squawking or talking, then there is nothing for the regulator to do.

Freedom Foreclosure Busted

2009-06-22T14:41:41Z

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From the FTC Press Release about a bogus mortgage foreclosure scheme:

"At the request of the Federal Trade Commission, a federal court has halted a bogus mortgage foreclosure prevention operation that misrepresented both the "loss mitigation" services it offered and the earnings potential of the business opportunity it sold.

The FTC seeks to end this deceptive scheme and make the defendants give up their ill-gotten gains. According to the FTC's complaint, the defendants sold "loss mitigation" services to homeowners at risk of foreclosure, falsely claiming they could prevent foreclosure in 97 percent of cases and misrepresenting that they would make a full refund if they failed.

Before performing any loss mitigation services, the defendants required homeowners to pay the equivalent of one month's mortgage payment. Their contracts instructed homeowners not to contact lenders or their contract and its money-back guarantee would be voided. In some cases the defendants' consultants told homeowners to stop making their mortgage payments while the defendants were working on their cases.

The FTC alleged that, contrary to the defendants' claims, they completed loan modification in only about 6 percent of cases and routinely failed to return consumers' repeated telephone calls. In numerous instances, the defendants had not contacted the consumers' lenders or had made only non-substantive contacts with them, resulting in late fees, penalties, and other costs for the homeowners. After failing to secure loan modifications, the defendants also failed to honor their refund policies.

The FTC's complaint also alleges that the defendants sold a "loss mitigation consultant" business opportunity for up to $1,500, falsely claiming that purchasers ("consultants") could earn various amounts, including up to $6,000 per week, by referring homeowners to them and by recruiting new consultants. In fact, throughout the defendants' entire operation, no consultant has earned that much money.

The defendants are charged with violating the FTC Act by misrepresenting that they would obtain a loan modification or stop foreclosure in all or virtually all instances; that they would give full refunds in all instances when they failed to obtain a loan modification or stop foreclosure; and that purchasers of their business opportunity could earn the levels of income claimed in their promotions."

I liked the "buy a job" aspect to this fraud. By engaging in "consulting" the homeowners are engaged by the principle of social proof and will not look carefully at the alleged loan modification program.

But in this case, the con criminals violated a well known principle - the pay-off to be a consultant should be relatively small in order for the homeowner to effectively change their minds about the adequacy of the loan modification program. True believers are cheap.

The 7 Habits of Highly Suspicious Funds

2009-06-22T13:55:35Z

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Rick Bookstaber has very interesting checklist for determining the riskiness of a hedge fund.

You've heard this story before: A trader at a bank is knocking the cover off the ball. His success garners political power within the bank.

He creates a fiefdom that insulates him from the rest of the firm; his trading group explodes in size. He lives a conspicuous, extravagant lifestyle.

His ego alienates the management and intimidates the support staff. Then the trader hits a rough patch. He uses all the tricks in the book to keep his poor results under raps while he tries to find a way to recoup.

Everyone is gunning for him, so he has to get back into the black, and fast.

Read the entire article on management of risk.

Stanford International Bank Ponzi

2009-06-19T23:38:15Z

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From the SEC Press Release on the Stanford Ponzi scheme.

On June 19, 2009, the Securities and Exchange Commission charged two accountants who produced bogus financial statements and an Antiguan regulator who took bribes to look the other way as Robert Allen Stanford conducted an alleged $8 billion Ponzi scheme.

The SEC previously charged Stanford and his companies -- Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management -- as well as SIB chief financial officer James Davis and Stanford Financial Group chief investment officer Laura Pendergest-Holt with securities fraud in an enforcement action filed in federal court in Dallas on February 17.

The SEC amended its complaint today to additionally charge Mark Kuhrt and Gilberto Lopez, accountants for Stanford-affiliated companies who allegedly fabricated financial statements to give investors the false illusion that their investments were solid, safe and secure.

The SEC also charged Leroy King, the administrator and chief executive officer of Antigua's Financial Services Regulatory Commission (FSRC), for accepting thousands of dollars per month in bribes to ignore the Stanford Ponzi scheme and supply Stanford himself with confidential information about the SEC's investigation.

King obstructed the SEC's case since 2005, when its investigation into Stanford began.

The SEC's additional charges today are in coordination with criminal authorities.

The U.S. Department of Justice (DOJ) today simultaneously announced federal fraud charges against Stanford, Davis, Pendergast-Holt, King, Kuhrt, and Lopez. The DOJ also charged King, Kuhrt, and Lopez with conspiracy to obstruct the SEC's investigation.

The DOJ previously charged Pendergast-Holt with obstruction of justice in the SEC's investigation.

According to the SEC's complaint, Kuhrt and Lopez used a pre-determined return on investment number (typically provided by Stanford or Davis) to reverse-engineer the SIB's financial statements and report investment income that the bank did not actually earn.

Information in SIB's financial statements and annual reports to investors bore no relationship to the actual performance of the bank investments.

The SEC's complaint alleges that King facilitated the Ponzi scheme by ensuring that the FSRC conducted sham audits and examinations of SIB's books and records.

In exchange for bribes paid to him over a period of several years, King made sure that the FSRC did not examine SIB's investment portfolio. King also provided Stanford with access to the FSRC's confidential regulatory files on him, including the SEC's requests for information from FSRC in its investigation.

King went so far as to allow Stanford to essentially dictate the FSRC's responses to the SEC on those information requests. King made false assurances that there was no cause for concern about Stanford International Bank. He collaborated with Stanford to withhold significant information being requested by the SEC.

According to the SEC's complaint, King is a citizen of the U.S. as well as Antigua and Barbuda, West Indies. He maintains residences in both Atlanta and Antigua. Lopez lives in Spring, Texas, and worked in SFG's Houston office as the chief accounting officer of SFG and its affiliate, Stanford Financial Group Global Management, LLC (SFGGM).

Lopez provided accounting services to many entities under Stanford's control, including SIB, SFG and SFGGM. Kuhrt is a resident of Christiansted, St. Croix, U.S. Virgin Islands, and is the global controller for SFGGM. He provided accounting services to many entities under Stanford's control, including SIB, SFG, and SFGGM. Kuhrt reported at various times to Lopez and Davis, but also directly to Stanford. Neither Lopez nor Kuhrt is a certified public accountant (CPA).