Tom Has Some Tips to Help Prevent Us From Getting Scammed
Transcript:
Easan Arulanantham:
So the next question is, how do I avoid a Ponzi scheme? Like, how do I protect myself from I guess, all those financial scams out there that we get? Always, you know, you get those spam emails and all that kind of stuff?
Tom Vaughan:
Yeah, there’s, that’s a really great question. God’s happens to be something I have, you know, thought about and run across a couple situations. So, in basic sense, you know, because I was working in a company called first investors, there was a lady there in Kentucky, who, working for first investors, she opened up an account somehow and first investors name she was taking in money, and then, you know, basically promising a rate of return. And that, you know, that’s the classic Ponzi scheme, you taking somebody’s money, you give them back 8% every year, or 10%, or 12, or some other crazy number. And then you just keep taking your money, and then you know, you’re spending the rest on your own lifestyle. But one of the keys there is that you have to have some ability, if you’re doing a Ponzi scheme to, you know, cash that check. And so that’s where opening his account, but they’re always making phony statements. So she was making phony first investors statements.
For example, we had another one, the last company I worked with was LPL Financial. Same thing right here in Fremont, actually, gentleman was doing exactly the same thing, taking the money in. And there, he was producing phony statements. And you know, eventually these things all break down, because they can’t keep up with the outflows. And you know, all of these people are in jail. And but one of the ways that you can really protect yourself is to if you have an account with someplace, make sure that you open up the digital client portal. So like, for example, TD Ameritrade has a client portal, if you have access to that client portal, and you should, if somebody is making a phony statement, you’ll be able to tell I mean, there won’t be anything in that client portal because making a phony, the web page that they’re getting access to. And especially if you do it yourself, you go directly to TD or Schwab or fidelity or wherever it is. I’ve always said that’s one of the best ways to defeat almost every single Ponzi scheme I’ve seen in the investment business is just opened up a digital account because they can make a phony statement. But making a phony webpage is much more difficult, and probably impossible. To be honest.
Now, there are other types of Ponzi schemes. And I can tell you a couple stories. So in one case, I was actually managing a portion of a union pension here for bus drivers, and called the amalgamated transit union. And I was working with one of the managers and I’m meeting with him on a regular basis talking about what we’re doing for our portion. And right as I’m leaving one of the meetings, he he pulls me aside right at the doorway, and he pulls out these two little nuts actually out of his pocket. And he’s talking to me about Brazilian rubber nuts. And he has this company that he ran into that was offering a 50% rate of return. And what they did supposedly was go in and buy things that you know that they could get at a big discount and and resell them, including Brazilian rubber nuts, as well as airline so Malaysia had an airplane, you know, and they would sell it to South Korea or what have you. It was a total scam, the guy ended up, you know, getting fired after investing in that thing. So but that’s another thing I would think about is don’t invest in things where you can’t go to the digital portal.
Another example I had a client, a real estate agent lost 380,000 he had a friend and Rotary Club right here in Los Altos. And that was called century medallion, the company, very famous case in our local area here, and 100 million dollars that this gentleman stole. And what he was doing was phony second deeds. So for example, if I had some money, and I wanted to invest in a second deed of trust, he would sell that to me for in this case, this gentleman was 380,000. And I would get some rate of return 12%. But the real issue was that there was no second deed, the guy was just making these up. And my client who was a real estate agent, you know, thought, Okay, I’m gonna, I’m gonna make sure this is okay, he drove by the property, just to take a look at it. But he never knocked on the door and asked the people if they were actually taking out, you know, a loan, and they weren’t.
And so, again, that’s one of those things that you know, it’s very hard to check. And so that’s why I would stay away from those types of investments where you cannot go to the client portal, so to speak, because that really does, I think, protect you as far as that goes. But it’s a really interesting area altogether. I think that if people think about it a little bit, you know, there are other types of scams. I read some article with a lady in Hong Kong who was scammed out over the phone at 32 million. That’s sort of a different deal. So just you know, know who you’re dealing with. But I really like that concept of the electronic portal that that makes it much more difficult for somebody to fake statements.