Investment Scams

Video Transcript

Kelly Kesner: I’m Kelly Kesner with Investor’s Watchdog University. I’m here with Pat Huddleston. He’s the founder of Investor’s Watchdog. And today we’re going to talk about investment scams as opposed to just misconduct or negligence in which a broker may do something wrong. We’re talking about a scam to which they can really criminally be in trouble.
Pat Huddleston: Yeah, that’s right. And because I do this for a living and you do too, Kelly, we know that when most people hear the word scam or they hear that this is going to be about scams, what do they do? They think, “Well, thank goodness I don’t have to listen to this one because I’m too smart to fall for one.” That’s just the way human brains tend to operate. You don’t think that you could be taken advantage of. But, please, please, please keep watching. Hang with us here and we promise that we’re going to tell you something about yourself that you didn’t know that can help make you much better protected.
Kelly Kesner: And I’m sure everyone’s heard of some of these and no one ever thought they were falling for a Ponzi scheme, for example, when they did,
Pat Huddleston: That’s right. We’ll go into Ponzi schemes in a lot more detail, but the thing to know about this today is that a Ponzi scheme can look like anything. Something that’s a Ponzi at its core can be wrapped in an infinite number of wrappings and so every kind of legitimate investment that you could conceivably be a Ponzi scheme at its core or conceivable could be a Ponzi scheme at its core; that’s how challenging it is to recognize these things.
Kelly Kesner: And other than Ponzi schemes there are other investment scams out there. What are some of those?
Pat Huddleston: We talk a lot about pump and dump scams.
Kelly Kesner: What are those?
Pat Huddleston: Yeah, some people have heard that term, some haven’t. Pump and dumps are really, really insididious. This happens a lot in penny stocks, stocks with small companies. What happens is that scam artist gain control of millions of shares of essentially a worthless shell company and then they set about making that worthless shell look like it’s worth a lot of money. They issue phony press releases. They trade the stock back and forth between themselves at ever increasing prices. And so if you take a look at the market data it looks like, hey, a lot of people are interested in this and the price is going up. And you take that along with the press releases and pretty soon people are buying based on those press releases and on the market data and then, of course, the press releases stop, the phony trading stops, and the price collapses.
Kelly Kesner: Sounds like it’s a definite way that a lot of people get caught up in something that just seems so simple and so safe.
Pat Huddleston: That’s right. There’s a scarier aspect to that, Kelly, and that is that organized crime is heavily involved in investment fraud. Pump and dump schemes especially. They have discovered that you can make a lot more money and have to break a lot fewer knee caps with a pump and dump scam than you can with loansharking.
Kelly Kesner: Organized crime?
Pat Huddleston: Organized crime.
Kelly Kesner: Like the Russian mob type of people.
Pat Huddleston: Yes, the Russian mob in particular. In fact, we talk about a case that involved the Russian mob in The Vigilant Investor. Ran maybe one of the biggest pump and dump scams in history right here on American shores without ever leaving his place in Russia.
Kelly Kesner: So, that’s not just a rumor. The Russian mob is actually operating in the United States through things like these pump and dump scams?
Pat Huddleston: They are with plenty of company from homegrown organized crime.
Kelly Kesner: Well, not all crooks are connected to organized crime. Correct?
Pat Huddleston: No, that’s right. But, before we leave that please remember organized criminals have the money to spread around to buy the cooperation of lots of different cohorts. They bribe brokers. They bribe attorneys. They bribe accountants. And so you need to know that they’re scams are going to look completely legitimate.
Kelly Kesner: And do the attorneys and accountants understand their part of the organized crime as it’s happening?
Pat Huddleston: Yeah, sometimes they do. You like to think that they don’t always at least anyway. But, maybe they’re not too careful. Maybe the money blinds them, which it has a tendency to do with everybody, right?
Kelly Kesner: So, it’s just a scary way for something that’s not legit to look legit like many other scams that are out?
Pat Huddleston: Exactly. But, following up on the question that you asked, it’s not just organized criminals. Believe it or not and we’ll talk about this in more detail, you’re trusted advisor, the person you have trusted with your financial future for 10, 20, 30 years is not immune to the coming Ponzi scamster. You might think that he or she is, but what we’re going to reveal to you in this series will show you that almost half of the Ponzi schemes that you hear about were started by people who were just as credible and just as honest as your advisor is right now.
Kelly Kesner: But, we’re going to get into that in further detail in the future. Right now, that’s all we have time for today. We’ll see you next week at another episode of Investor’s Watchdog University. Thank you.

[Music Playing]

[End of Audio]