In today’s fast-moving marketplace there’s no shortage of financial scams, charlatans and investment management shenanigans out to take advantage of unsuspecting investors.
You’ve probably seen the e-mail in your inbox sent on behalf of the Nigerian Banker who simply needs you to forward $500 before he can release a substantial windfall in your name.
Or the friend who is traveling abroad and has lost their wallet and desperately needs you to send them $2000 via Western Union.
We often think of these scams as “small scale” and that only “gullible” people can be taken advantage of with these tactics.
The harsh reality is that all humans are comprised of the same base emotions of Fear and Greed. As such, we can all at times be susceptible to the lure of con-men.
That’s why we always counsel investment management clients and potential clients that the # 1 way to avoid a financial scam is to never allow your financial manager to take CUSTODY over your investment assets.
This means you should never write a check earmarked for insurance or investment purposes made out in the name of your advisor.
Just as important, you should always ensure that your investments are “housed” at a Bank, Brokerage or Trust company that is completely separate and “arms-length” from your financial manager.
Take the case of Bernie Madoff. Remember him?
It just so happens that his own company, Bernard L. Madoff Securities Inc., held custody over all his clients assets. This allowed him to create fictitious statements. Show fictitious trades. Report fictitious returns.
And ultimately manipulate the largest financial scam ever carried out in history.
Thousands of individual investors, pension funds, corporations and universities lost big in Bernie Madoff’s $50 billion Ponzi scheme.
Here’s a celebrity client list, some of whom are now facing significant financial challenges as a result of Madoff’s fraud. While not all amounts have been disclosed, here are 10 of the biggest celebrities that were hit.
1. Steven Speilberg- the director’s Wunderkinder Foundation lost an undisclosed amount, although in 2006 about 70% of the interest and dividend income came from the Madoff firm.
2. Kevin Bacon and Kira Sedgwick–the stars of “Footloose” and “The Closer” lost an undisclosed amount. Sedgwick said at the time that while they weren’t destroyed, they did lose hard earned money that they thought was in a safe place.
3. Elie Wiesel Foundation for Humanity lost $15.2 million.
4. Sandy Koufax
5. Eric Roth- the screenwriter of “Forrest Gump” said, “The tragedy is the people who lost their life savings and their dreams.”
6. Larry King reportedly lost more than $1 million.
7. Zsa Zsa Gabor personally lost $10 million
8. Jeffery Katzenberg- the head of DreamWorks Animation and producer of films like “Shrek” lost an estimated $20 million.
9. John Malkovich said he was “ruined” financially by the scam.
10. Eliot Spitzer
This was a terrible tragedy that continues to play out for thousands of investors across the globe. And if anything positive can come from this, it’s the lesson that….
This entire scam could have been avoided if investors simply had not allowed Madoff’s personal Investment Management Firm to hold custody over their hard-earned investment assets.