You’ve probably also seen some of those unbelievable advertisements which say something like, “I made millions in 18 months – You can too; OR Earn 50% on your money in 12 months” etc, etc.
One part of us often wants to pick up the phone and say tell me more, hoping that we will find our pot of gold at the end of the rainbow while the doubting Thomas within us says: “it sounds too good to be true.”
I recently heard of an investment proposition that was promising to pay 5% a month which equates to at least 60% a year. This opportunity was to be supported by a bank guarantee from a recognised bank. The person promoting the scheme was claiming to be worth tens of millions of dollars and said that he would achieve these returns through skilled overseas currency futures trading activities and bank debenture trading programmes.
His story attracted the attention of many people and I received numerous requests asking my opinion about this proposition. Since I had not seen the investment proposal personally, nor spoken to the promoters of the scheme, I wanted to reserve my judgement until I had received more information.
I suggested to the enquirers that they do some more research to ascertain the validity of the investment and the likelihood of them being paid these phenomenal returns. They also needed to be sure that their initial capital would be safe.
The difficulty for most people is that they don’t know what questions to ask and where to obtain the necessary information to confirm someone’s bona fides. They often take the promoter’s spiel at face value and rely on their gut feel as to the value of the investment. Their greed and desire for the get rich quick solution often prompts them to put money into such deals only to find out later that they have lost their money.
There are many of these types of schemes promoted around the country and it is worth recalling the old adage that: the greater the return, the greater the risk. While not all high yielding investments are in the high risk category, this age old principle generally holds true.
The best way of ensuring that you don’t fall victim to unsound investment proposals is to develop financial intelligence through self education. The book,
How To Be Rich & Happy On Your Income shows you how to take control of your finances and to manage your money yourself. It teaches you reliable principles for building wealth that have stood the test of time. It has been described as a life changing, easy-to-read, nuts and bolts book packed with powerful, practical and easy to understand tools to live a richer and happier life.
In the example I gave earlier, my research provided some interesting results.
In the first place, I asked myself why would someone who is apparently worth tens of millions of dollars, want to deal with large numbers of inexperienced small investors who are likely to be nervous about their investment and make frequent enquiries as to how their investment is going. The answer was that by pooling the funds of the many small investors, he could make much larger trades which would apparently result in much larger profits. Since markets go up as well as down, I would think that any losses incurred would be much larger too.
How is he managing that risk and is that risk acceptable to you as a potential lender/investor?
What is intriguing is that on the capital base claimed by this promoter, he would have the capacity to invest up to $60 million dollars without resorting to any small investors. I would have thought that would give him the possibility of doing some rather large trades in his own right without having to share the profits.
Could it be that he does not actually have the money he claims to be worth?
In order to overcome the ASIC regulations surrounding investments, this promoter explained to his enthusiastic audience that they would in fact be making a loan to him or one of his entities rather than investing funds with him. He told them that their funds would be safe because they would receive a bank guarantee. Although he held up the letterhead of a major bank, he would not let people read the text of the letter or the signatory to that letter. He also told people not to bother ringing the bank because the person who was organising this was very busy and they would not be able to get through to him.
Is it possible to produce almost any documentation complete with logos and signatures on a basic home computer these days?
Investigation also revealed that this person had never successfully completed the types of trades he was promoting to his audience and that he in fact had no experience in how to set these up. The documentation for the programme was being created as it was being promoted and as questions were being asked. While he was promoting the programme, he had no fixed address because he was travelling around the countryside promoting this wonderful wealth building opportunity and therefore needed no particular place to live. He assured his audience however, that he would be setting up new offices soon and would have an address and contact details available for them. In the meantime, they could contact him on his mobile number.
This is from someone who claims to be worth tens of millions of dollars!
While I am willing to give everyone a fair go, this story is far too good to be true to my sceptical mind. It is not very difficult for anyone these days to buy a mobile phone with prepaid calls and then, once they have raised the desired amount of money, to throw the phone in the bin and disappear to enjoy the proceeds. Furthermore, it is most unlikely that anyone who is worth tens of millions of dollars would have so few possessions that they could live out of a suitcase for several months! I know I would find it rather difficult to do.
I certainly smell a rat in this whole scenario. I suggest that you take a very critical look at every investment proposal you are encouraged to look at to ensure that the people you are being asked to entrust your money to are credible and have a successful track record with the activities they are promoting. They should also be willing to disclose how they are going to earn those terrific rates of return and provide full documentation of their proposal. If they are unwilling to do this for you, it’s probably too good to be true. In that case you should take a moment to reflect on the old saying: a fool and his money are easily parted.
If you want to know how to evaluate an investment proposal before you part with your hard earned cash or if you want to know how to find a good professional adviser such as an accountant, lawyer, property manager or stockbroker, I suggest you take a look at the book
Due Diligence Made Simple.
Sadly there are many shysters out there who are only too happy to help relieve you of your hard won assets. They are generally well dressed and very convincing in their spiel. They’ve had all the right training and they’ve got an answer for almost everything. You need to arm yourself with the necessary skills and tools to avoid being taken by these sharks.
Due Diligence Made Simple will show you how.
Further developments in this case:
On 12th March 2001 the Australian Securities and Investments Commission
(ASIC) took action in the Supreme Court of NSW against Pegasus Leveraged Options Group Pty Ltd and successfully froze the assets of the company its sole director Mr Craig John McKim.
Unfortunately the person who was the subject of this article was not a director of Pegasus Leveraged Options Group Pty Ltd but rather a commissioned sales agent. He did not get caught in ASIC's net. He continued promoting scams until he fled the country. at this stage I cannot name him because he has not yet been apprehended.
On Wednesday 24th April 2002 the
ASIC announced that Mr Craig John McKim, former director director of the Pegasus Leveraged Options Group Pty Ltd (Pegasus), has been banned from being involved in the management of a company for 30 years.
Evidence showed that while approximately $3.7 million from approximately 90 investors was traced through the Pegasus bank accounts, the likely funds taken by the scheme were far in excess of that amount.
In preliminary hearings, Mr McKim, who was managing Pegasus while disqualified from being a director on account of previous criminal convictions, claimed his investors' money was being held in a bank account in Spain, and that efforts were being made to return this money to Australia.
The court heard that money invested in the scheme was used to pay business expenses as well as high rates of return to investors. Cash transfers were made to Mr McKim and his relatives as well as cash withdrawals from the relevant bank accounts.
Mr McKim also lost approximately $2 million through gambling.
Now here's another interesting twist. The word Pegasus was used in Greek mythology to describe a winged horse. Some people think of it as the winged horse.
Can you guess on what form of gambling Mr McKim lost much of his investors' money?
You guessed it!
The horses!
Is it conceivable that he may have that intention all along when he first set up the Pegasus Leveraged Options Group Pty Ltd?
Spot the scamster!
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About Hans Jakobi
Hans Jakobi is an educator, author and investor. He is the author of six best-selling books including,
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© 2002 Hans Jakobi. All rights reserved worldwide
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