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The Recent Hit List

By John Dietz - Email Editor

Date : March 3, 2009

Dear Valued Reader,

It seems like every week we are asking who is next on the hit list. One of the worst parts of the recession story is that seemingly intelligent and experienced investors have lost their money to swindles inside and outside of the volatile market. No one seems to be immune. Warren Buffet said this week in his quarterly report to shareholders that shares of Berkshire Hathaway Inc. sank to their lowest level in 5-1/2 years amid concerns that the insurance and investment company could suffer bigger losses from bets on world stock markets and U.S. banks.

Maybe this is lending to the fact that the term “guru” has no definition when it comes to investments and, hence, bestows great credence to the word “risk.” If I had to take that to heart, I would say that I too would be out of business; however, at face value this has left enormous numbers of individuals and businesses with the need for Asset Protection. Of course, one of our most important mantras remains “never trust anyone with your hard-earned money”. If I had to take a guess, I think you would say that 99% of the time, the problem is the person between the principle and the money.

What can you do? We will discuss this at the conclusion, but the first step requires your awareness and ability to identify. You must be your own sort of detective. Here is the “Hit List” for last week.

The Ponzi Scam List

The “old” Ponzi scheme never seems to go away. We have seen it repeatedly; don’t you think we should be able to catch on? This week the U.S. Commodity Futures Trading Commission (CFTC) announced the indictments of three major Ponzi schemes totaling $74 million dollars. It is not as easy to catch “the Ponzi” as you would think.

Every indictment alleges issuing false statements to investors, including annual reports that reflected substantial profits and false representations that the reports had been audited by accounting firms and in every accounting, no trading occurred.

Indicted were:

*Anthony Ramunno, Jr., formerly of Alpharetta, Georgia, and His Company, Renaissance Asset Management LLC, fined and sanctioned in a $21 million Ponzi scheme operating an illegal commodity pool Ponzi scheme in which over 90 public investors lost over $21 million.

*Daren L. Palmer of Idaho Falls, Idaho, with operating a Ponzi scheme involving approximately $40 million in connection with the unregistered Trigon Group, Inc. commodity futures pool.

*Mark Evan Bloom and his firm, North Hills Management LLC alleged misappropriation of over $13 million of the assets of North Hills LP. a fund managed by defendants and investing North Hills Fund assets contrary to the represented investment strategy.

The Lesson

There is no such thing as too smart to be fooled or a scam that is too known to occur. Notice that no firms on Wall Street lost any money with the Bernie Madoff Ponzi scheme, only individuals and their companies and not-for-profit organizations lost, as uncovered by Harry Marcopolis, the whistle blower in the case. Harry Marcopolis calls this scam the classic affinity scam because people felt they were “exclusive” by investing in Bernie Madoff.

The Personal Piggy Bank Scam

When the University of Pittsburgh and Carnegie Mellon investment managers were arrested last week, jaws dropped.

As recently as three weeks ago, Pitt placed $21.25 million with Westridge Capital Management Inc. bringing its total investment to $65 million and CMU invested $49 million with Westridge in April and May 2008 because the fund was "highly recommended.” The total investment between the two institutions was estimated at $114 million overall.

As the week progressed with leaking details, jaws dropped even further. So controversial was this group (actually two men) that since 1993 when they bought stake in the New York Islanders and made a mockery of the team’s logo, they have been in the limelight of criticism for flaunting their wealth in the community. Their legacy of spending includes racehorses, private Steiff bear collections, purchases and interest in professional sports teams, mansions, luxury vacation homes, investments in several companies that filed for bankruptcy, one unsuccessful $900 million dollar merger and that is only the tip of the iceberg. They were also known to be great community men who contributed to community events.

When these two gentlemen were arrested, Paul Greenwood 61, of North Salem, NY and Stephen Walsh 64 of Sands Point, NY, one town resident said of Mr. Greenwood, “It is as if Abraham Lincoln were arrested.”

You may be wondering, “How can this be?” Two top universities in the United States duped. Never mind who is to blame, check out this unnerving clue.

Westridge served as its own administrator and broker-dealer, said New York attorney Ross Intelisano in an interview with Bloomberg News. Intelisano said third parties such as financial advisers can find themselves the targets of legal action if there is a lack of due diligence in their work. What he really suggests in the statement “its own administrator” is that the broker-dealer has the fiduciary control to do as they please with the funds, until challenged. Obviously, Westridge Capital put the funds they controlled into their own piggy banks. The piggy bank was seized and the Feds expect to recover about $50 to $150 million of the total amount of $553 million lost in a $1.3 billion dollar overall indictment; five other arrests occurred.

The Lesson

If you have a piggy bank and you give it to someone to hold, you are subjected to their actions. Full concern and diligence should be given to every investment you make. Often there are significant clues, do not ignore them.

The Tax Cheat Scam

UBS – Though this has been ongoing for the past nine months, last week, the Swiss banking giant agreed to pay $780 million in fines; and turn over the names of 250 U.S. clients. Investigators are now seeking the names of an additional 50,000 for whom they believe they have due cause to investigate. UBS will complete the exit of the U.S. cross-border business of non-SEC registered entities.

Pursuant to an order issued by the Swiss Financial Market Supervisory Authority (FINMA), information will be transferred to the DOJ regarding accounts of certain U.S. clients, who, based on evidence available to UBS, appear to have committed tax fraud or the like within the meaning of the Swiss-US Double Taxation Treaty.

The DOJ has agreed that any prosecution of UBS be deferred for a period of at least 18 months. The Swiss Federal Banking Commission (SFBC) concluded that UBS violated the requirements for proper business conduct, and it barred UBS from providing services to U.S. resident private clients out of non-SEC registered entities.

The Lesson

Ultimately, you are responsible to pay your taxes even if coerced to do otherwise by a third party.

In Conclusion

Let’s first do away with the saying, “Risk equals reward.” I think that a better saying is, “A wise man risks no more than he can stand to lose.” If you have your money in funds or investments that you can A) either lose your profit or B) lose you principle, then you have to understand that you could “lose.” That is the obvious.

Now you can add this to your vocabulary. The word is custody.

Custody – the care and control of a specific thing or security – Black’s Law.

You will need to begin paying more attention to the entity or person(s) who have custody of your funds or investments. This may require the help of an attorney or a planner who knows about the specific custody in which you are about to place your money. Where custody gets confusing is where it splits “care and responsibility” from “control.”

When you have given an entity care and control in totality, you are basically on the sidelines. You give your bank “care”, but you maintain control. You can certainly see the lack of risk with the bank as opposed to Bernie Madoff. The firm is only as good as the people that work there or maintain the custody of your funds.

I am not pushing you to put your money in a bank. I am pushing you to analyze your exposure (if it is not too late) and to analyze the percent of your money that you have no control over; all of this money is at risk. Essentially this is what an Asset Protection Plan does; it minimizes your risk of being on the next hit list.

Until next time,

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