Financial Plus

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Financial Plus 

While the recent Financial Plus Ponzi scheme in Los Angeles has all the elements typical of most similar frauds (e.g. no due diligence, unrealistic returns, religious element), it was unusual in that it went after non-wealthy Hispanics whom one might not think of as being potential dupes investors for an ambitious scammer.

Although this somewhat limited the scope of the fraud in terms of overall dollars – these fraudsters were more modest in their ambitions than was Madoff – it also limited the capacity of the victims to exercise due diligence: In most cases they had neither the financial background nor the resources to consider exercising any semblance of true due diligence.

As one victim noted, the ads were done by a Latino star, and a man of God – we are not sure which god, but Mammon seems a fair guess – started every meeting with a prayer. What more could one want?

What more could one want? This is an interesting question. On the one hand, it is unreasonable to expect the individuals in the Financial Plus fraud who lost their life savings, and in some cases their homes, to exercise the same level of due diligence we might have expected (but didn’t see) from the Madoff participants. On the other hand, we were at that time going through a government rebellion against enforcement of onerous regulation, with the SEC faced with budget cuts if it chose to investigate violations, or even reported indications of fraud as in the larger Madoff case.

As a rule of thumb, most financial fraud is avoidable, just as many financial disasters are avoidable: We had advised clients against investing with well- regarded fraudsters like Madoff and Stanford, and one editor of this journal advised his wife, third quarter last year, to move her 401K to CDs since it was so apparent that the U.S was heading for a financial meltdown. But this rule of thumb holds only for people interested in and capable of protecting themselves.

ÆGIS, April 2009 2If individuals are not capable of protecting themselves, and if the government is not willing to provide them legitimate protection, then the individuals are simply out of luck.

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