Quatloos!

Clients of Swiss banking giant UBS are trying to get the bank to continue to hide their names from disclosure to tax authorities in the United States.

UBS has been using the names of a few hundred UBS depositors (read: tax evaders) as a bargaining chip to avoid the bank's indictment in the U.S. for assisting with tax evasion. UBS claims, apparently with a straight face, that these depositors mislead the bank about whether they were correctly reporting their U.S. taxes. The depositors are claiming, apparently also with a straight face, that UBS mislead them into believing that UBS would report their taxes for them.

In fact, both UBS and these depositors knew what was going on: The depositors were using UBS to commit tax evasion, and UBS was actively assisting them with it by setting up bogus corporations so that the accounts could be held in corporate, not individual, name.

The IRS has estimated that UBS has assisted 17,000+ U.S. citizens to evade taxes. UBS has offered to turn over a few hundred names. But it is unlikely that the IRS will stop there, especially with an incoming Obama Administration that promises to be tough on offshore tax evasion.

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Labels: swiss bank, swiss banking, tax evasion, UBS

Some of the victims of the Madoff pyramid scheme are about to receive more bad news -- If they received any money back from Madoff, the Receiver will want it back.

When a pyramid scheme collapses, the Court appoints a Receiver to husband and sequester all the assets of the scheme for the benefit of all investors. The Receiver will create a Victim's Fund, and all victims will receive a percentage of the Victim's Fund based on the size of their original investment.

The assets of the scheme include payments that the scheme made to others, including payments back to investors. If a Madoff investor received anything back from Madoff -- even if it was less than their original investment -- they will have to give that amount of money back to the Receiver, to be pooled with any other money and assets that the Receiver can find, and then these investors will get their percentage of the Victim's Fund.

If a Madoff investor refuses to pay the Receiver back, the Receiver can sue the investor and make the investor pay the costs and attorney fees of recovery, in addition to getting the money back. In some situations, the Court may also issue order to hold a recalcitrant investor in jail for contempt. "Resistance," as one might hear in a sci-fi B-movie, "is futile." It can also be very costly.

Charities are not exempt from disgorgement. If a charity received money from Madoff, it had better be prepared to give the money back. Charities may have exemption from income taxes from the IRS, but charities have no special exemption at all from Receiver-ordered disgorgement of what amounts to criminal proceeds. This will hit a lot of charities hard at this time when the economy is sharply down and charitable inflows have slowed from a mighty river to a miserly trickle.

Receivers and disgorgement are one of the more unpleasant things about pyramid schemes, and have the effect of re-victimizing the victims, sort of like having a rape victim testify at trial. But it is necessary to protect the rights of all investors, and not just those who received redemptions from Madoff.

Labels: disgorgement, madoff, pyramid scheme, receiver, recovery, redemption, victim's fund

So people lost $50-plus billion to Bernie Madoff, so what? The only difference this time is that a few institutional investors, charities, and celebrities were caught up in this particular pyramid scheme.

Every year, pyramid schemes divest literally thousands of people of their life savings and put seniors on the street. Whether the victims are attracted through internet chat rooms or because the scam artist hoodwinked the local pastor into arranging investments for the benefit of the church, at any given time there are probably hundreds of pyramid schemes running somewhere in the U.S., and thousands more throughout the world.

Here at Quatloos! we have see and tracked many of these scams. For years, we tracked the Omega Trust & Trading scam, where people sent in $100 to buy "units" that were initially promised to give a $2,500 return, which eventually grew to where each unit was alleged to be worth $100,000. Indeed, even when the Omega scammers weren't paying off on the original scam, they ran a subsequent scam to sell "refund units", i.e., the units from other investors who had obtained refunds (although there were not any of these in actuality), and fleeced even more money out of their already-jilted investors.

Perhaps what makes the Madoff scam is the reputation of the main crook. Most pyramid schemes are run by those with no real financial education, background, or experience. Clyde Hood, who ran the Omega scam by contrast, was simply a retired electrician in Mattoon, Illinois. Madoff was the chairman of the NASDAQ from 1990 to 1993 -- no pyramid schemer has ever had such stellar credentials.

All the signs of a scam were there. The high but steady returns, the lack of transparency in how money was being made, and obscure auditors all raised red flags to those interested in knowing. And, indeed, it has since come out that there were at least one significant whistleblower, and maybe several.

But at the end of the day, the investors who lost everything have their own stupidity to blame. Sure, it is always easy to "blame the victim" for not discovering a scam, but this isn't why these investors were stupid. The reason the Madoff investors who lost everything were stupid is that they did not diversify their investments. There is simply no reason why any sane person -- or charity -- would have more than a small part of their investment with an obscure hedge fund like Madoff's. By following even minimal diversification rules, there is absolutely no reason why any Madoff investor should have lost more than 10% of their portfolio.

So why did investors throw caution to the wind and put everything with Madoff: Some combination of laziness and greed. These investors were getting a higher (albeit, paper) return with Madoff than on anything else they were investing in. So, instead of putting in the hard work to find other good investments, or accepting a lower return on their other investments for the sake of diversity, they instead put all their money with Madoff.

Mark Twain once wrote, "put all your eggs into one basket, and then watch it mightily." It's that second part that the Madoff investors missed, and if they weren't going to watch their investments like a hawk, they should have put them into one basket.

The way to avoid being scammed out of your portfolio is the same that it has always been: Diversify, diversify, and diversify. Decide how much is the most that you can lose on any particular investment, and then limit the investment to that percentage. It should be very rare that any particular investment, other than cash or government-backed bonds, should be more than 10% of a portfolio.

And that's not any sophisticated financial strategy; that's just common sense.

Talk about the Madoff scam on our new Madoff Scam discussion forum at http://quatloos.com/Q-Forum/viewforum.php?f=36

Labels: diversified portfolio, fraud, madoff, pyramid scheme, quatloos, scam

In the beginning and somewhere around 1997, there was an Oklahoma attorney (Yours Truly) who just happen to mention something on his legal website about offshore investment scams. The inquiries that the Oklahoma attorney received and his time in responding was driving him batty, so he decided to create a small website to give plain information on these scams in the hopes that people would leave him alone and not ask stupid questions, such as "Is that deal in Grenada where I can make a 40% weekly guaranteed return on my mone for real?"

Thus begat Quatloos! Version 1.0. The first version was pretty bland, but after a few tries a pirate theme was adopted that persists to this day. The website became a niche favorite, and won some awards. The Oklahoma attorney was even invited to testify before Congress about schemes, scams, and cons.

Just forward to 2002, and the questions and comments had gone from a few a day to a deluge. It was frankly impossible for any one person to keep up. Thus, a discussion forum was created where some folks could ask questions, and other folks could answer them. Scam artists even made it to the board to argue that was they were doing was legal, and sometimes even try to pitch their investments to others. A small army of volunteers arose to ridicule them. And, thus, Quatloos! Version 2.0 became popular as a discussion board.

But now it is 2008, and the main Quatloos! board has fallen into disrepair for the simple reason that it is TOO BIG and has far too many pages to be manageable on anything like a day-to-day basis without the sizeable staff that our paltry non-profit organization totally lacks. Just figuring out where a single new .html page should go, and creating basic links to it, now takes a couple of hours.

Therefore, be it resolved that the following changes will take place:

(1) The existing Quatloos main pages will be moved into the background, into a section called Ye Olde Quatloos! These pages will stil be on the server for research and archival purposes.

(2) Quatloos! main pages will convert to Blog pages, and volunteers will be sought to daily add stories and commentaries on various scams and related topics.

(3) The Discussion boards will be expanded to include forums for specific large scams, for instance, the Madoff hedge fund/pyramid scheme will be given its own forum.

As always, your comments are greatly welcomed to me at jayadkisson >[at]< gmail.com

Your most humble and obedient servant,

~ Jay