Financial Industry Rants & Sins, Vol 16

Howard I Wiener
Jul 30, 2017 · 3 min read

A couple days ago I received an email from an acquaintance. It read “Hey Howard, what do you think of this investment my friend is in and wants me to go into also? He says that he has made $1500 per month every month for the last 8 months on an initial investment of only $5000. Supposedly they give 30% monthly returns. Just curious what you think?”

At the time he sent the message and the link, I was in my doctor’s office and couldn’t look into it too deeply. But my initial reaction was “That looks like a Ponzi scheme where they just return your principal and then pay you with other people’s money. Remember that the higher they promise the returns will be, the greater your commensurate risk will be. And if it seems too good to be true, that’s cause it probably is.”

When I came home and had a few minutes, I clicked the link again and I returned to their website. Indeed, they promised 30–40% returns in 30 days, and 60% in 60 days. My first question, which I didn’t tell my acquaintance, is “How come more people aren’t doing this if it’s so easy? That multiplies your money by 16–56+ times in 12 months, so the initial investment of $5000 would blossom into $84,000-$283,000.”

But here is what I noticed and told him. “The first thing I see under investment diversification is that they take very big risks with your money. Next is out of 5078 clients, only 4989 are happy with the service they provide. The other 89 didn’t seem to like the 30–40% return in 30 days or 60% in 60 days? And about that return. They don’t specify anything on the website about how they achieve it.

“Also, they use crypto-currency to invest in capital markets, thereby increasing the number of variable by which you’re exposed to risk. It exponentially multiplies your risk of total loss in a complex system. If you understand anything about complexity theory, you’ll know that adding on one risk factor to a stable system can destabilize that system by perhaps 1%. Add a second factor and perhaps that goes to 3%. But they’re using the most unstable factors to add more risk to an already complex and volatile system.

“My vote is not just caveat emptor (buyer beware), but rather stay the hell away!”

The issues I had with this “investment”, if you will, didn’t end there. It was impossible to see from their website who and how they were owned. Also, the company is completely unregulated (huge red flag). Anyone who is the custodian of my cash better be under the auspices of the SEC, FINRA, the state departments of finance for all 50 states, and any other financial industry regulator known to America. This company was under none. By contrast, my online brokerage account handily provides all this info with ease, and they actually want you to have it.

The next point of contention is that after some digging I found out they invest in something called a binary option. That adds even more risk, and some jurisdictions around the world have already banned their use. On top of that it seems that the FBI is investigating too many brokers of these vehicles.

A short while later he emailed me a copy of their certificates. One was from the Financial Commission, which seems to be a better business bureau style entity for financial firms. But if the firm already has approbation from the SEC and FINRA, they don’t need a certificate from the Financial Commission. The second certificate was from a company called the FMRRC. Their webpage boasts of certifying a mere 31 companies.

When making your investment decisions you should remember that all the get rich quick schemes only make one guy rich quick, and it’s not you. You lose everything you invest and the schemer will probably have everything in untraceable accounts outside the US by the time the authorities catch up with him. Steer clear, and if you want to be a good Samaritan you may consider reporting schemes like this one to your state department of financial services, usually found linked on your state’s website, like my state New York.

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