The interesting thing about this is that legitimate money managers act like this too. These are completely binary propositions: either they make you money or they don't. No slew of licenses and regulatory ID number checks will help this.
> He arranged for tours of properties in Geneva and Monaco and once insisted Diana travel on what he said was his company’s private jet. (Hottinger had no plane; it was chartered especially for the occasion, for about $40,000.) “He got us by being relentlessly helpful,” Diana, 59, says. “We’re Francophiles,” adds Andrew, 74. “We both speak French, we love French food—so maybe we were vulnerable. We were impressed.”
His "exploitation" of cross border regulators to evade a harsher conviction and restitution isn't really that notable, in my opinion (albeit clever if he was avoiding money laundering charges as the article suggests). Many legitimate funds have to operate with the same flexibility and exemptions for other reasons, and ultimately you either create value for your investors or you don't.
The real deterrent is that people are more concerned about their kneecaps and families, especially from any gangsters or politicians they have in the fund.
If that deterrent is gone then you'll see more of this.
First, the regulatory/court sanction will be in one country, or whichever ones bother. In the US for example, these bans are a couple years long.
Second, thats just investment banks and licences in that country and possibly forming your own fund, in that country or with that countrys citizens.
Third, the man was managing other peoples money independently, without working for an investment bank, so it doesnt matter what the broad industry thinks.
Fourth, and if you need a license then maybe it matters, but again not in every country.
Fifth, if you are perceived as making good returns and your potential investors arent making good returns, then they want to invest with you.
I must admit that, before reading this article, I made an quick (and wrong) assumption about the clients who collectively lost $100M. I assumed they were naive folks who blindly handed over the money. But what really boggles my mind is the amount of money they were dealing with:
- Canadian engineers who had recently sold a water-treatment company to General Electric Co. for $656 million.
- A few months later, Reissfelder, a laid-back German coder living near San Francisco, sold his travel startup to Expedia for $85 million
I doubt I could ever really trust anyone enough for me to hand over that amount of money and I doubt I could express the level of anger when all that money vanishes into thin air.
Yeah, I would certainly be hesitant to allocate a substantial portion of my money to a non-major-brand hedge fund or other investment vehicle.
But, I don't have that kind of money to play with anyways, so I've haven't looked into it and can't make an accurate statement about why someone would choose a boutique investor.
Hopefully everyone in this thread will take away that it is good to allocate at least some capital to basic, standard financial products through big-name companies like vanguard, schwab, etc. I mean, I'm not an investment advisor, but putting all your money in one account with one company and one strategy seems like a poor choice.
To distill this to a single piece of advice: every mainstream brokerage, private wealth management, or broker asset custodian[1] firm provides a Web interface with at least read-only access to balance and holdings. If you’re using an asset manager who hasn’t provided access (on a well-known domain name), find out why and get access. There’s no need to trust printed or static PDF statements. You should be able to see exact holdings as reported directly to you by a recognized name.
If you're dealing with a scammer who's not afraid to blow $40k a pop on chartered jets, there's nothing stopping them from creating a pretty website that shows fake portfolios composed of real prices of real assets they haven't actually bought.
so how does one protect oneself from these kinds of scams? how do i distinguish it from a legitimate find manager who actually performs as well as they claim?
https://news.ycombinator.com/item?id=15991784 has more, but basically, get access to Web-based results from name-brand bank or custodian. A legitimate PWM professional will already be using a custodian bank (or will be employed at a large bank like UBS, JPM, or BoA, so you'll have access to their employer's site).
Also, they'll appreciate that you're doing this due diligence. If you get any pushback, move on.
Also worth noting that this problem is mostly moot for a typical retail investor who has assets at a name-brand brokerage like ETrade, Schwab, or TD Ameritrade, and already has self-service access to the bank/brokerage's site. At that point, an individual advisor might be able to make unilateral allocation changes, but the money's there and the bank will have a trading history. This problem in this article basically starts with trusting a lot of money to an individual or tiny firm, and that basically only comes up in PWM and non-traditional asset classes.
I agree that electronic deception is a real risk, though I tried to cover this briefly with "on a well-known domain name." To be more specific, if the site isn't a name-brand PWM, brokerage, or custodian bank domain (examples: ubs.com, vanguard.com, fidelity.com), find out why. I agree that a site is easy to put up, but getting it on a domain name visited by hundreds of thousands or millions of people is not.
(And yes, a few tiny PWM firms do use their own Web sites, and you should be much more skeptical of the data you're getting from a 6-employee firm's site). Get access to your custodial account at a name-brand firm's site, or change asset managers.)
There are two very different ways to fall into that one big bet investment" trap:
The obvious one is greed, if you believe that you have found the best investment, why allocate funds to the second best.
The less obvious one is all about UX: when people who don't consider wealth management their life's calling happen upon a fortune, they just want that money safely out of mind. And safely, to them, includes not causing unintended disagreements with the taxman. This requires keeping things simple enough to feel confident in being able to at least roughly understand what their professional advisors are doing. Obviously, an "all eggs in one basket" approach with a mainstream investment like a basic ETF would be the much lesser evil. But when people have a high base level of distrust in any wealth management professional this can easily blind them to the all-important difference between a regular whitehat tax advisor and a sleazy ponzi salesperson, making them the perfect mark for the latter.
The thing is, if I won the lottery or something, so I had a truly massive amount of money, I would start thinking about the risks of just putting it in one broker, with one index ETF. You can always imagine another point of failure, and if you get carried away avoiding risk (or conversely simplifying your finances), "congratulations, you just played yourself".
Watching American Greed opened my eyes how common these ponzi schemes are and how victims come from all walks of life. I've noticed a pattern though, victims usually seem to be the people like retirees who view markets as too risky are sold on promise that their principle will be safe.
A friend recently moved into a new apartment. She only got 4 channels, one of which almost exclusively shows American Greed and Forensic Files. I've been pleasantly surprised by how interesting the show is! It's particularly interesting when you see episodes that happened within a couple hours of wherever you live.
Reading the full paragraph about Reissfelder makes it sound like a great deal of social engineering went on:
> A few months later, Reissfelder, a laid-back German coder living near San Francisco, sold his travel startup to Expedia for $85 million. He was 33, and with his cut, he was looking forward to traveling the world with his fiancée. That made Reissfelder the perfect target: newly rich, financially inexperienced, and distracted. The same people who had introduced Gaglio to the Benedeks—a network of tax lawyers called the Society of Trust & Estate Practitioners, or STEP—set him up with Reissfelder. Gaglio quickly formed an emotional connection. When Reissfelder said he wanted to lose weight, Gaglio forwarded photos of himself as a pudgy youth. Before long, Gaglio was signing his daily texts and emails with “Bises”—kisses. “In my mind, I’m thinking the familiarity was weird—but they’re French, you know?” Reissfelder says. “When he started suggesting investments, I said no, but he was so insistent, and I kind of felt obliged.” Reissfelder even ended up inviting Gaglio to his wedding in the Cayman Islands.
It sounds like it was a slow burn leading up to suggesting that Reissfelder invest money with Gaglio.
I've heard from retirees of my acquaintance that at a less elevated level, you can regularly eat for free at fine restaurants courtesy of people who want to give you a sales pitch on managing your nest egg. It's possible to socially engineer the social engineers.
There's this notion of affinity fraud, where con men approach victims from the same group (ethnic group, church, school alumni, etc.), and via this connection immediately get a trust bonus that's then exploited.
On one hand, I'm inclined to say: Beware investing with friends of friends. On the other hand, the best investment opportunities often are not public, but only available to a select circle. I think that's one reason affinity fraud so often works.
According to the text of the article, the Benedeks lost $20MM and Reissfelder lost $12MM.
The sums you quote ($656MM and $85MM) are what they sold their companies for, respectively; maybe those numbers are from public records. But, the primary sellers didn't necessarily retain all that money. There were other stakeholders, legal people to pay, and so on.
Also it says the Benedeks bought another German company after they sold their own company. So I guess that cost them a few million, too.
Your point is still valid - these people handed over substantial sums, between $10MM and $20MM each to a custom investment house.
What amazes me is...where they thought the money was coming from, for the helicopters and private jets.
If a single client justifies a private jet... well, for a going business, the money for the jet (whether chartered or owned) is coming out of that single client. $40k is 0.4% of $10MM. That's a pretty high cost for one meeting.
If the company treats all of its clients this way - each client has to pay that 0.4%. If the company treats only one its clients this way, or only a few of its clients this way, then it's a shady company. Either way, it smells, and it seems obvious from a distance. It's true that the article is the source of the $40k number for the jet, but fees for private jets (chartered or not) are not hard to estimate. Just read the economist, you can see the $$ in the ads.
I don't have $10MM to invest, but the unsustainable overhead seems obvious to me. It would be reckless to ignore it.
If the investment is $1B... a private jet seems required. $40k against that is tiny. I would EXPECT a private jet if I were investing a billion dollars. But for $10MM?
Did I misread the article? I didn't get the impression that they handed over the entirety of those figures. Reissfelder lost "only" $12M. It seemed to me like they invested a lot of money, but nowhere near the entirety of it.
Yes this is bizarre I know who id call if I one the big euro lottery (the chairman of an investment trust I hold shares in) and I know roughly where the first 400k I would invest on my own behalf.
It sucks but did this guy not know who the really safe banks are for this sort of thing? if it had been me I would have been of to coutts or drummonds the day after selling my stake.
> Gaglio’s former partner, Jean-François de Clermont-Tonnerre, is back in business as an asset manager, together with his wife. They have put together a network of firms extending from Malta via Luxembourg to Geneva.
“If there are no consequences, then the world is seriously broken.“
The world is broken when people make 100’s of millions of dollars and spend it on villas, expensive art, dining, etc while others work their asses off just to scrape by on a meager existence.
Boo fucking hoo they lost millions to a scammer when that doesn’t even near bankrupt them. Imagine losing millions and just going on living the same lifestyle...
The world has been broken since agriculture. The system has gotten less rigged than its inception. Imagine instead if a middle class existence, you only had a life of slave drudgery. True slave drudgery. The kind where myths of a world without work are created. Your diet is a monoculture grain. You are mentally slower, more lethargic, and have stunted bones than your ancestors a few generations before.
Meanwhile the surplus of your labors goes towards a small priest caste and he priest king. He musters up your young, with the storable surplus you helped create, and gets them to raid other stores of surplus (other towns and cities) so that he can get more loot and women. Did I mention that your wife is always at risk of casual rapine by the boss man?
This world is stupid in its way but, at the beginning of the rigged games during the Neolithic, it was even more stupid.
People loose millions every year without consequences. It's only considered a crime under certain circumstances and if you don't fulfill the general expectations in terms of behavior, dress codes, legal structures, etc. Maybe this guy just made the mistake of using a way of loosing the money that made him personally liable. He used the wrong form of investment and legal structure.
If he had taken a better lawyer and fund manager, this wouldn't have happened.
Right, so you think investing is the same as theft.
That would make Warren Buffett is the biggest thief of all and has apparently stolen $487B from investors. Of course he hasn't spent their money, it's actually invested in hundreds of companies and investors can get their money back any time they want just by calling their broker.
But in your mind, it's the same as if he had stolen it. Because of "lawyers, accountants, and stuff".
No. At the risk of speaking for someone else, he appears to believe that we live in a society where it is far too easy for individuals with malign motivations to blur the line between managing someone's money and stealing it.
A much simpler case is the investment house my mother used shortly after my Father died. While they did not out right steal, they charged very high fees and tried to convince her to move her investments around. Now that she understands what she got into, it will still cost her more than it should to withdraw her money. She trusted them as the salesmen was from her church, and the company had "lutheran" in it's name.
Charging excessive fees and poorly serving client needs isn't theft.
Saying the Ponzi scheme guy is no different than a sleazy stock broker is massively trivializing his crimes. Sure, what happened to your parents is wrong, but it's far from what he did to his victims.
Where did Warren Buffet lose money unaccountably? Why are you shifting the goal posts, derailing a thread about personal liability for losses to talk about a successful investor?
I think you'll find that the attribute of "intrinsic motivation", which is what your argument boils down to, is not that clear cut (not even to the "fraudster") in reality.
Warren Buffett "lost" around $200 billion of his investors money during the 2008-2009 financial crisis. Obviously no investor lost a dime unless they sold at the bottom, and any that held are well ahead.
This was to establish that the mere act of losing investor's money isn't fraud. And it's not a question of "intrinsic motivation", it's solely aa question of what they actually did.
Warren Buffett doesn't commit fraud because he tells his investors he's going to invest their money in equities, which has risk. If Berkshire Hathaway goes to zero because he made poor decisions, that's not fraud.
The ponzi scheme was fraud because he was paid to invest the money, but did not do that, instead he spent the money on himself and hid a bunch with his family. How hard is it to understand the difference between doing what you agree to do with someones money and stealing it?
I can see the difference, but I think in reality these cases are way less clear and the lines are way more blurry. I also wasn't really discussing the legality of his actions, I was rather addressing the way in which some of these people slip on the wrong path. Some of them may be evil, but not all of them are the kind of malign criminals as these media stories portray them.
Since it's holiday season, I'll give a more comprehensive answer with a literature recommendation: Thomas Mann's Confessions of Felix Krull. I'm pretty sure you'll like it if you haven't read it yet. Also relevant would be Gottfried Keller's Kleider machen Leute (clothes make the man), a beautiful love story. Unfortunately it apparently has never been translated into English.
But that's the problem in reading an English translation of a 2000-yr old text. Too many handlers have intervened, one must assume the purity of the original has been compromised.
As has been said a few different ways: it's all in the translations.....I was indoctrinated with the King James Version, you know, the one that is 100 % accurate, up to knowing which books to leave out after the council of Nicaea... So in that light, the quote is correct :)
Dr Galli seems like an interesting character. One wonders how you get started in that line of work. That database of his strikes me as being of interest to quite a few people.
49 comments
[ 4.9 ms ] story [ 111 ms ] thread> He arranged for tours of properties in Geneva and Monaco and once insisted Diana travel on what he said was his company’s private jet. (Hottinger had no plane; it was chartered especially for the occasion, for about $40,000.) “He got us by being relentlessly helpful,” Diana, 59, says. “We’re Francophiles,” adds Andrew, 74. “We both speak French, we love French food—so maybe we were vulnerable. We were impressed.”
His "exploitation" of cross border regulators to evade a harsher conviction and restitution isn't really that notable, in my opinion (albeit clever if he was avoiding money laundering charges as the article suggests). Many legitimate funds have to operate with the same flexibility and exemptions for other reasons, and ultimately you either create value for your investors or you don't.
The real deterrent is that people are more concerned about their kneecaps and families, especially from any gangsters or politicians they have in the fund.
If that deterrent is gone then you'll see more of this.
Second, thats just investment banks and licences in that country and possibly forming your own fund, in that country or with that countrys citizens.
Third, the man was managing other peoples money independently, without working for an investment bank, so it doesnt matter what the broad industry thinks.
Fourth, and if you need a license then maybe it matters, but again not in every country.
Fifth, if you are perceived as making good returns and your potential investors arent making good returns, then they want to invest with you.
The end.
- Canadian engineers who had recently sold a water-treatment company to General Electric Co. for $656 million.
- A few months later, Reissfelder, a laid-back German coder living near San Francisco, sold his travel startup to Expedia for $85 million
I doubt I could ever really trust anyone enough for me to hand over that amount of money and I doubt I could express the level of anger when all that money vanishes into thin air.
But, I don't have that kind of money to play with anyways, so I've haven't looked into it and can't make an accurate statement about why someone would choose a boutique investor.
[1]: Many smaller firms use Fidelity, Vanguard, Schwab, or another large firm as custodian: https://www.bogleheads.org/forum/viewtopic.php?t=170678, https://www.wallstreetoasis.com/blog/how-pwm-really-works-pa...
Also, they'll appreciate that you're doing this due diligence. If you get any pushback, move on.
Also worth noting that this problem is mostly moot for a typical retail investor who has assets at a name-brand brokerage like ETrade, Schwab, or TD Ameritrade, and already has self-service access to the bank/brokerage's site. At that point, an individual advisor might be able to make unilateral allocation changes, but the money's there and the bank will have a trading history. This problem in this article basically starts with trusting a lot of money to an individual or tiny firm, and that basically only comes up in PWM and non-traditional asset classes.
(And yes, a few tiny PWM firms do use their own Web sites, and you should be much more skeptical of the data you're getting from a 6-employee firm's site). Get access to your custodial account at a name-brand firm's site, or change asset managers.)
The obvious one is greed, if you believe that you have found the best investment, why allocate funds to the second best.
The less obvious one is all about UX: when people who don't consider wealth management their life's calling happen upon a fortune, they just want that money safely out of mind. And safely, to them, includes not causing unintended disagreements with the taxman. This requires keeping things simple enough to feel confident in being able to at least roughly understand what their professional advisors are doing. Obviously, an "all eggs in one basket" approach with a mainstream investment like a basic ETF would be the much lesser evil. But when people have a high base level of distrust in any wealth management professional this can easily blind them to the all-important difference between a regular whitehat tax advisor and a sleazy ponzi salesperson, making them the perfect mark for the latter.
Search for the word 'ponzi'
https://en.wikipedia.org/wiki/List_of_American_Greed_episode...
I really enjoy reading about whitw collar crime so this is right up my alley B)
> A few months later, Reissfelder, a laid-back German coder living near San Francisco, sold his travel startup to Expedia for $85 million. He was 33, and with his cut, he was looking forward to traveling the world with his fiancée. That made Reissfelder the perfect target: newly rich, financially inexperienced, and distracted. The same people who had introduced Gaglio to the Benedeks—a network of tax lawyers called the Society of Trust & Estate Practitioners, or STEP—set him up with Reissfelder. Gaglio quickly formed an emotional connection. When Reissfelder said he wanted to lose weight, Gaglio forwarded photos of himself as a pudgy youth. Before long, Gaglio was signing his daily texts and emails with “Bises”—kisses. “In my mind, I’m thinking the familiarity was weird—but they’re French, you know?” Reissfelder says. “When he started suggesting investments, I said no, but he was so insistent, and I kind of felt obliged.” Reissfelder even ended up inviting Gaglio to his wedding in the Cayman Islands.
It sounds like it was a slow burn leading up to suggesting that Reissfelder invest money with Gaglio.
On one hand, I'm inclined to say: Beware investing with friends of friends. On the other hand, the best investment opportunities often are not public, but only available to a select circle. I think that's one reason affinity fraud so often works.
https://en.wikipedia.org/wiki/Affinity_fraud
The sums you quote ($656MM and $85MM) are what they sold their companies for, respectively; maybe those numbers are from public records. But, the primary sellers didn't necessarily retain all that money. There were other stakeholders, legal people to pay, and so on.
Also it says the Benedeks bought another German company after they sold their own company. So I guess that cost them a few million, too.
Your point is still valid - these people handed over substantial sums, between $10MM and $20MM each to a custom investment house.
What amazes me is...where they thought the money was coming from, for the helicopters and private jets.
If a single client justifies a private jet... well, for a going business, the money for the jet (whether chartered or owned) is coming out of that single client. $40k is 0.4% of $10MM. That's a pretty high cost for one meeting.
If the company treats all of its clients this way - each client has to pay that 0.4%. If the company treats only one its clients this way, or only a few of its clients this way, then it's a shady company. Either way, it smells, and it seems obvious from a distance. It's true that the article is the source of the $40k number for the jet, but fees for private jets (chartered or not) are not hard to estimate. Just read the economist, you can see the $$ in the ads.
I don't have $10MM to invest, but the unsustainable overhead seems obvious to me. It would be reckless to ignore it.
If the investment is $1B... a private jet seems required. $40k against that is tiny. I would EXPECT a private jet if I were investing a billion dollars. But for $10MM?
It sucks but did this guy not know who the really safe banks are for this sort of thing? if it had been me I would have been of to coutts or drummonds the day after selling my stake.
> Gaglio’s former partner, Jean-François de Clermont-Tonnerre, is back in business as an asset manager, together with his wife. They have put together a network of firms extending from Malta via Luxembourg to Geneva.
The world is broken when people make 100’s of millions of dollars and spend it on villas, expensive art, dining, etc while others work their asses off just to scrape by on a meager existence.
Boo fucking hoo they lost millions to a scammer when that doesn’t even near bankrupt them. Imagine losing millions and just going on living the same lifestyle...
Meanwhile the surplus of your labors goes towards a small priest caste and he priest king. He musters up your young, with the storable surplus you helped create, and gets them to raid other stores of surplus (other towns and cities) so that he can get more loot and women. Did I mention that your wife is always at risk of casual rapine by the boss man?
This world is stupid in its way but, at the beginning of the rigged games during the Neolithic, it was even more stupid.
If he had taken a better lawyer and fund manager, this wouldn't have happened.
If you tell someone you will invest their money, but you spend it on yourself, that's a crime.
Can you see the difference?
Or what’s your point?
That would make Warren Buffett is the biggest thief of all and has apparently stolen $487B from investors. Of course he hasn't spent their money, it's actually invested in hundreds of companies and investors can get their money back any time they want just by calling their broker.
But in your mind, it's the same as if he had stolen it. Because of "lawyers, accountants, and stuff".
Saying the Ponzi scheme guy is no different than a sleazy stock broker is massively trivializing his crimes. Sure, what happened to your parents is wrong, but it's far from what he did to his victims.
Where did Warren Buffet lose money unaccountably? Why are you shifting the goal posts, derailing a thread about personal liability for losses to talk about a successful investor?
I think you'll find that the attribute of "intrinsic motivation", which is what your argument boils down to, is not that clear cut (not even to the "fraudster") in reality.
This was to establish that the mere act of losing investor's money isn't fraud. And it's not a question of "intrinsic motivation", it's solely aa question of what they actually did.
Warren Buffett doesn't commit fraud because he tells his investors he's going to invest their money in equities, which has risk. If Berkshire Hathaway goes to zero because he made poor decisions, that's not fraud.
The ponzi scheme was fraud because he was paid to invest the money, but did not do that, instead he spent the money on himself and hid a bunch with his family. How hard is it to understand the difference between doing what you agree to do with someones money and stealing it?
Since it's holiday season, I'll give a more comprehensive answer with a literature recommendation: Thomas Mann's Confessions of Felix Krull. I'm pretty sure you'll like it if you haven't read it yet. Also relevant would be Gottfried Keller's Kleider machen Leute (clothes make the man), a beautiful love story. Unfortunately it apparently has never been translated into English.
Timothy 6:10. Pet peeve when that word is dropped. Money isn't necessarily behind everything.
One must also assume the original had any purity to be compromised.
Dr Galli has a Web presence..
http://www.cii2.org/index.php?option=com_community&view=prof...
http://swiss-east-affairs.ch/