Wednesday, May 20, 2009

Rearview Mirror Justice- Online Scams, Madoff Response, Charles Ponzi

Subtitled- "No Help for Dudley Dooright"

Last night I discovered (through the person's stupidity) an online scam on craigslist. The person attempted 2 times to sell a really nice Acura TL for $4,000 on Michigan based boards. They used the same e-mail address, and followed with the same Picassa account for more pictures. The first time they even had a picture of a carfax report from a different car. Different cars each time, but in perfect condition (likely from a dealer lot being fully detailed).

Both times 'Patricia Trump' claimed to be a single mother. The first time she would lose her house. Considering the houses in the background of the pictures $4,000 would have covered the mortgage for only one month. This time her son is in the hospital and this money will be the difference between his getting healthy or not.

The Indiana Attorney General referred me to to file a complaint.

I found that IC3 has no means to report an obvious scam before it happens. I am in the middle of negotiating with this person, and I have them on a string, so I want authorities to take it over or tell me what to do so this person can be caught. It starts by asking how you were defrauded. It asks for details of my means of payment, and how much I lost. With so little information, I wonder if my complaint will make it through their filter to actually being viewed by a human.

Apparently the Justice system is only thinking about solving problems after they occur, and can't open their mind to upfront prevention. How about a simple selection on the front-end, "I think I have something here, take a quick glance and let's get them before someone else is defrauded."

The past decade has again shown how this rearview mirror perspective pervades the executive and legislative branches. Sarbanes-Oxley would prevent another Enron as executives of public corporations would no longer manipulate information in financial statements without serious personal penalty. But they are shocked by the seemingly unrelated Madoff scheme and will fix that now.

In the next 6 months we will have legislation that claims to prevent another Madoff. I will stick my neck out and predict that the first (and likely only) law will be completely targeted at smaller registered investment advisors who custody client assets especially in a related broker/dealer. It will either impose a hefty burden of compliance, reporting, or filing fees or not allow it at all. For those who fall under custody rules but with an unrelated broker/dealer, the cost of compliance will be overwhelming. The worst case scenario may be that they expand the definition of custody that practically eliminates advisory firms like mine.

Many of my peers may disagree with me. They can't imagine our government is as narrow minded as I suggest.

After Ponzi served 3 years on federal charges, he skipped bail while appealing state charges, he went to Florida and started the Charpon Land Syndicate selling swamp land. REALLY. I am not kidding. That is where we get that term. Not only was our justice system completely incapable of putting Charles Ponzi away for any material length of time (even though numerous federal judges lost money to his first scam), they weren't even smart enough to catch the same guy doing the same thing with a different asset in a different state. How depressing.

Given that, I will say that when the name of the perpitrator changes, we should hold very little to no hope at all.

I hope our government makes me look like a fool instead of a prophet.