Modern day Madoff: six signs of a scam

As previously trusted wealth creation investments– such as land, or retail consumables – become volatile and unreliable, more and more clients are coming to us about new types of investment schemes. These schemes seemingly promise large, immediate, risk-free returns. Sound too good to be true? It often is. Enter the new financial schemes: the modern-day Madoffs.

Targeted at the wealthy elite, the fraudsters claim to have access to secret trading platforms and private placements. The schemes purport to involve bank instruments, medium term notes (MTNs) and government bonds. They are often said to be sanctioned by well-known monetary organisations.

In our experience, people are told that there is a ‘big player’ behind the scenes- who they will not be allowed to meet. Over months or even years, their credentials will be checked by a core group of individuals who they get to know and trust.

People are regularly reminded of the ‘privileged position’ they are now in. Once onboard, investors are instructed to transfer funds to a ‘blocked account’ for ‘trading’. Individuals can remain confident that their funds are secure (and are regularly assured of this) – safe in the knowledge that their authority is required to move them.

Once in this ‘blocked account’, funds will either be transferred without authority – a straightforward theft. Or alternatively, the by-then trusted team of advisors will explain that there are unexpected last minute problems, matters beyond their control, and the funds must be transferred to another account; they will only be out of the investor’s control for a matter of days.

Once the fraudsters gain control of the funds, they are quickly dissipated across numerous jurisdictions. By the time people realise what has happened, their money is long gone. The previously trusted team is no longer contactable. . The money is lost.

While these are sophisticated schemes being presented by seemingly consummate professionals, there are warning signs to look out for.

  1. Secrecy: no legitimate investment scheme needs to be kept secret. If you want to discuss it with your trusted financial advisor, accountant or lawyer – you can and you should.
  2. Stressing that you are in a privileged position: you are not. It’s your money and you can do what you want with it.
  3. Excessive use of technical terminology: if you don’t understand something – ask for an explanation. Anyone offering you an investment should be both willing – and able – to clearly articulate how an investment scheme works.
  4. Paperwork: it should be comprehensive. Get it reviewed by your trusted adviser. If anything seems unusual – such as being subject to an unexpected jurisdiction – question it.
  5. Resistance to questions: any investment should be entirely transparent. There is no information to which you are ‘not entitled’. It’s your money and your risk.
  6. Last minute requirements. Don’t be rushed. If matters change at the last minute because of unforeseen circumstances, make sure you’re entirely comfortable with the changes being made.

We recently obtained a judgment for clients defrauded of €100 million. While €88 million was returned and the fraudsters ordered to pay the remaining €12 million plus costs, it took over two years for the litigation to complete. Be wise to the schemes: if it looks too good to be true – it usually is.