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I must admit that, before reading this article, I made an quick (and wrong) assumption about the clients who collectively lost $100M. I assumed they were naive

I must admit that, before reading this article, I made an quick (and wrong) assumption about the clients who collectively lost $100M. I assumed they were naive folks who blindly handed over the money. But what really boggles my mind is the amount of money they were dealing with: - Canadian engineers who had recently sold a water-treatment company to General Electric Co. for $656 million. - A few months later, Reissfelder, a laid-back German coder living near San Francisco, sold his travel startup to Expedia for $85 million I doubt I could ever really trust anyone enough for me to hand over that amount of money and I doubt I could express the level of anger when all that money vanishes into thin air.

dbmikus 9y ago
Yeah, I would certainly be hesitant to allocate a substantial portion of my money to a non-major-brand hedge fund or other investment vehicle. But, I don't have that kind of money to play with anyways, so I've haven't looked into it and can't make an accurate statement about why someone would choose a boutique investor.
- abakker 9y ago
  Hopefully everyone in this thread will take away that it is good to allocate at least some capital to basic, standard financial products through big-name companies like vanguard, schwab, etc. I mean, I'm not an investment advisor, but putting all your money in one account with one company and one strategy seems like a poor choice.
  - troydavis 9y ago
    To distill this to a single piece of advice: every mainstream brokerage, private wealth management, or broker asset custodian[1] firm provides a Web interface with at least read-only access to balance and holdings. If you’re using an asset manager who hasn’t provided access (on a well-known domain name), find out why and get access. There’s no need to trust printed or static PDF statements. You should be able to see exact holdings as reported directly to you by a recognized name. [1]: Many smaller firms use Fidelity, Vanguard, Schwab, or another large firm as custodian: https://www.bogleheads.org/forum/viewtopic.php?t=170678 https://www.bogleheads.org/forum/viewtopic.php?t=170678, https://www.wallstreetoasis.com/blog/how-pwm-really-works-part-1-of-past-present-and https://www.wallstreetoasis.com/blog/how-pwm-really-works-pa...
    - jpatokal 9y ago
      If you're dealing with a scammer who's not afraid to blow $40k a pop on chartered jets, there's nothing stopping them from creating a pretty website that shows fake portfolios composed of real prices of real assets they haven't actually bought.
      - chii 9y ago
        so how does one protect oneself from these kinds of scams? how do i distinguish it from a legitimate find manager who actually performs as well as they claim?
        troydavis 9y ago
        https://news.ycombinator.com/item?id=15991784 https://news.ycombinator.com/item?id=15991784 has more, but basically, get access to Web-based results from name-brand bank or custodian. A legitimate PWM professional will already be using a custodian bank (or will be employed at a large bank like UBS, JPM, or BoA, so you'll have access to their employer's site). Also, they'll appreciate that you're doing this due diligence. If you get any pushback, move on. Also worth noting that this problem is mostly moot for a typical retail investor who has assets at a name-brand brokerage like ETrade, Schwab, or TD Ameritrade, and already has self-service access to the bank/brokerage's site. At that point, an individual advisor might be able to make unilateral allocation changes, but the money's there and the bank will have a trading history. This problem in this article basically starts with trusting a lot of money to an individual or tiny firm, and that basically only comes up in PWM and non-traditional asset classes.
      - troydavis 9y ago
        I agree that electronic deception is a real risk, though I tried to cover this briefly with "on a well-known domain name." To be more specific, if the site isn't a name-brand PWM, brokerage, or custodian bank domain (examples: ubs.com, vanguard.com, fidelity.com), find out why. I agree that a site is easy to put up, but getting it on a domain name visited by hundreds of thousands or millions of people is not. (And yes, a few tiny PWM firms do use their own Web sites, and you should be much more skeptical of the data you're getting from a 6-employee firm's site). Get access to your custodial account at a name-brand firm's site, or change asset managers.)
  - usrusr 9y ago
    There are two very different ways to fall into that one big bet investment" trap: The obvious one is greed, if you believe that you have found the best investment, why allocate funds to the second best. The less obvious one is all about UX: when people who don't consider wealth management their life's calling happen upon a fortune, they just want that money safely out of mind. And safely, to them, includes not causing unintended disagreements with the taxman. This requires keeping things simple enough to feel confident in being able to at least roughly understand what their professional advisors are doing. Obviously, an "all eggs in one basket" approach with a mainstream investment like a basic ETF would be the much lesser evil. But when people have a high base level of distrust in any wealth management professional this can easily blind them to the all-important difference between a regular whitehat tax advisor and a sleazy ponzi salesperson, making them the perfect mark for the latter.
  - perl4ever 9y ago
    The thing is, if I won the lottery or something, so I had a truly massive amount of money, I would start thinking about the risks of just putting it in one broker, with one index ETF. You can always imagine another point of failure, and if you get carried away avoiding risk (or conversely simplifying your finances), "congratulations, you just played yourself".
deleted 9y ago
[deleted]
dominotw 9y ago
Watching American Greed opened my eyes how common these ponzi schemes are and how victims come from all walks of life. I've noticed a pattern though, victims usually seem to be the people like retirees who view markets as too risky are sold on promise that their principle will be safe. Search for the word 'ponzi' https://en.wikipedia.org/wiki/List_of_American_Greed_episodes https://en.wikipedia.org/wiki/List_of_American_Greed_episode...
- froindt 9y ago
  A friend recently moved into a new apartment. She only got 4 channels, one of which almost exclusively shows American Greed and Forensic Files. I've been pleasantly surprised by how interesting the show is! It's particularly interesting when you see episodes that happened within a couple hours of wherever you live.
- spondyl 9y ago
  Oh wow, thanks! I really enjoy reading about whitw collar crime so this is right up my alley B)
nilkn 9y ago
Reading the full paragraph about Reissfelder makes it sound like a great deal of social engineering went on: > A few months later, Reissfelder, a laid-back German coder living near San Francisco, sold his travel startup to Expedia for $85 million. He was 33, and with his cut, he was looking forward to traveling the world with his fiancée. That made Reissfelder the perfect target: newly rich, financially inexperienced, and distracted. The same people who had introduced Gaglio to the Benedeks—a network of tax lawyers called the Society of Trust & Estate Practitioners, or STEP—set him up with Reissfelder. Gaglio quickly formed an emotional connection. When Reissfelder said he wanted to lose weight, Gaglio forwarded photos of himself as a pudgy youth. Before long, Gaglio was signing his daily texts and emails with “Bises”—kisses. “In my mind, I’m thinking the familiarity was weird—but they’re French, you know?” Reissfelder says. “When he started suggesting investments, I said no, but he was so insistent, and I kind of felt obliged.” Reissfelder even ended up inviting Gaglio to his wedding in the Cayman Islands. It sounds like it was a slow burn leading up to suggesting that Reissfelder invest money with Gaglio.
- perl4ever 9y ago
  I've heard from retirees of my acquaintance that at a less elevated level, you can regularly eat for free at fine restaurants courtesy of people who want to give you a sales pitch on managing your nest egg. It's possible to socially engineer the social engineers.
- FabHK 9y ago
  There's this notion of affinity fraud, where con men approach victims from the same group (ethnic group, church, school alumni, etc.), and via this connection immediately get a trust bonus that's then exploited. On one hand, I'm inclined to say: Beware investing with friends of friends. On the other hand, the best investment opportunities often are not public, but only available to a select circle. I think that's one reason affinity fraud so often works. https://en.wikipedia.org/wiki/Affinity_fraud https://en.wikipedia.org/wiki/Affinity_fraud
PantaloonFlames 9y ago
According to the text of the article, the Benedeks lost $20MM and Reissfelder lost $12MM. The sums you quote ($656MM and $85MM) are what they sold their companies for, respectively; maybe those numbers are from public records. But, the primary sellers didn't necessarily retain all that money. There were other stakeholders, legal people to pay, and so on. Also it says the Benedeks bought another German company after they sold their own company. So I guess that cost them a few million, too. Your point is still valid - these people handed over substantial sums, between $10MM and $20MM each to a custom investment house. What amazes me is...where they thought the money was coming from, for the helicopters and private jets. If a single client justifies a private jet... well, for a going business, the money for the jet (whether chartered or owned) is coming out of that single client. $40k is 0.4% of $10MM. That's a pretty high cost for one meeting. If the company treats all of its clients this way - each client has to pay that 0.4%. If the company treats only one its clients this way, or only a few of its clients this way, then it's a shady company. Either way, it smells, and it seems obvious from a distance. It's true that the article is the source of the $40k number for the jet, but fees for private jets (chartered or not) are not hard to estimate. Just read the economist, you can see the $$ in the ads. I don't have $10MM to invest, but the unsustainable overhead seems obvious to me. It would be reckless to ignore it. If the investment is $1B... a private jet seems required. $40k against that is tiny. I would EXPECT a private jet if I were investing a billion dollars. But for $10MM?
- athenot 9y ago
  The generalization of that is when you see high customer acquisition costs relative to what you think a vendor might earn from you, ask yourself why.
- rasz 9y ago
  Its part of the con, when someone asks you explain the show is for $1B whales, and this small 10mil investment is practically a favour on the side.
the_watcher 9y ago
Did I misread the article? I didn't get the impression that they handed over the entirety of those figures. Reissfelder lost "only" $12M. It seemed to me like they invested a lot of money, but nowhere near the entirety of it.
walshemj 9y ago
Yes this is bizarre I know who id call if I one the big euro lottery (the chairman of an investment trust I hold shares in) and I know roughly where the first 400k I would invest on my own behalf. It sucks but did this guy not know who the really safe banks are for this sort of thing? if it had been me I would have been of to coutts or drummonds the day after selling my stake.

dbmikus 9y ago

Yeah, I would certainly be hesitant to allocate a substantial portion of my money to a non-major-brand hedge fund or other investment vehicle. But, I don't have that kind of money to play with anyways, so I've haven't looked into it and can't make an accurate statement about why someone would choose a boutique investor.

abakker 9y ago
Hopefully everyone in this thread will take away that it is good to allocate at least some capital to basic, standard financial products through big-name companies like vanguard, schwab, etc. I mean, I'm not an investment advisor, but putting all your money in one account with one company and one strategy seems like a poor choice.
- troydavis 9y ago
  To distill this to a single piece of advice: every mainstream brokerage, private wealth management, or broker asset custodian[1] firm provides a Web interface with at least read-only access to balance and holdings. If you’re using an asset manager who hasn’t provided access (on a well-known domain name), find out why and get access. There’s no need to trust printed or static PDF statements. You should be able to see exact holdings as reported directly to you by a recognized name. [1]: Many smaller firms use Fidelity, Vanguard, Schwab, or another large firm as custodian: https://www.bogleheads.org/forum/viewtopic.php?t=170678 https://www.bogleheads.org/forum/viewtopic.php?t=170678, https://www.wallstreetoasis.com/blog/how-pwm-really-works-part-1-of-past-present-and https://www.wallstreetoasis.com/blog/how-pwm-really-works-pa...
  - jpatokal 9y ago
    If you're dealing with a scammer who's not afraid to blow $40k a pop on chartered jets, there's nothing stopping them from creating a pretty website that shows fake portfolios composed of real prices of real assets they haven't actually bought.
    - chii 9y ago
      so how does one protect oneself from these kinds of scams? how do i distinguish it from a legitimate find manager who actually performs as well as they claim?
      - troydavis 9y ago
        https://news.ycombinator.com/item?id=15991784 https://news.ycombinator.com/item?id=15991784 has more, but basically, get access to Web-based results from name-brand bank or custodian. A legitimate PWM professional will already be using a custodian bank (or will be employed at a large bank like UBS, JPM, or BoA, so you'll have access to their employer's site). Also, they'll appreciate that you're doing this due diligence. If you get any pushback, move on. Also worth noting that this problem is mostly moot for a typical retail investor who has assets at a name-brand brokerage like ETrade, Schwab, or TD Ameritrade, and already has self-service access to the bank/brokerage's site. At that point, an individual advisor might be able to make unilateral allocation changes, but the money's there and the bank will have a trading history. This problem in this article basically starts with trusting a lot of money to an individual or tiny firm, and that basically only comes up in PWM and non-traditional asset classes.
    - troydavis 9y ago
      I agree that electronic deception is a real risk, though I tried to cover this briefly with "on a well-known domain name." To be more specific, if the site isn't a name-brand PWM, brokerage, or custodian bank domain (examples: ubs.com, vanguard.com, fidelity.com), find out why. I agree that a site is easy to put up, but getting it on a domain name visited by hundreds of thousands or millions of people is not. (And yes, a few tiny PWM firms do use their own Web sites, and you should be much more skeptical of the data you're getting from a 6-employee firm's site). Get access to your custodial account at a name-brand firm's site, or change asset managers.)
- usrusr 9y ago
  There are two very different ways to fall into that one big bet investment" trap: The obvious one is greed, if you believe that you have found the best investment, why allocate funds to the second best. The less obvious one is all about UX: when people who don't consider wealth management their life's calling happen upon a fortune, they just want that money safely out of mind. And safely, to them, includes not causing unintended disagreements with the taxman. This requires keeping things simple enough to feel confident in being able to at least roughly understand what their professional advisors are doing. Obviously, an "all eggs in one basket" approach with a mainstream investment like a basic ETF would be the much lesser evil. But when people have a high base level of distrust in any wealth management professional this can easily blind them to the all-important difference between a regular whitehat tax advisor and a sleazy ponzi salesperson, making them the perfect mark for the latter.
- perl4ever 9y ago
  The thing is, if I won the lottery or something, so I had a truly massive amount of money, I would start thinking about the risks of just putting it in one broker, with one index ETF. You can always imagine another point of failure, and if you get carried away avoiding risk (or conversely simplifying your finances), "congratulations, you just played yourself".

deleted 9y ago

[deleted]

dominotw 9y ago

Watching American Greed opened my eyes how common these ponzi schemes are and how victims come from all walks of life. I've noticed a pattern though, victims usually seem to be the people like retirees who view markets as too risky are sold on promise that their principle will be safe. Search for the word 'ponzi' https://en.wikipedia.org/wiki/List_of_American_Greed_episodes https://en.wikipedia.org/wiki/List_of_American_Greed_episode...

froindt 9y ago
A friend recently moved into a new apartment. She only got 4 channels, one of which almost exclusively shows American Greed and Forensic Files. I've been pleasantly surprised by how interesting the show is! It's particularly interesting when you see episodes that happened within a couple hours of wherever you live.
spondyl 9y ago
Oh wow, thanks! I really enjoy reading about whitw collar crime so this is right up my alley B)

nilkn 9y ago

Reading the full paragraph about Reissfelder makes it sound like a great deal of social engineering went on: > A few months later, Reissfelder, a laid-back German coder living near San Francisco, sold his travel startup to Expedia for $85 million. He was 33, and with his cut, he was looking forward to traveling the world with his fiancée. That made Reissfelder the perfect target: newly rich, financially inexperienced, and distracted. The same people who had introduced Gaglio to the Benedeks—a network of tax lawyers called the Society of Trust & Estate Practitioners, or STEP—set him up with Reissfelder. Gaglio quickly formed an emotional connection. When Reissfelder said he wanted to lose weight, Gaglio forwarded photos of himself as a pudgy youth. Before long, Gaglio was signing his daily texts and emails with “Bises”—kisses. “In my mind, I’m thinking the familiarity was weird—but they’re French, you know?” Reissfelder says. “When he started suggesting investments, I said no, but he was so insistent, and I kind of felt obliged.” Reissfelder even ended up inviting Gaglio to his wedding in the Cayman Islands. It sounds like it was a slow burn leading up to suggesting that Reissfelder invest money with Gaglio.

perl4ever 9y ago
I've heard from retirees of my acquaintance that at a less elevated level, you can regularly eat for free at fine restaurants courtesy of people who want to give you a sales pitch on managing your nest egg. It's possible to socially engineer the social engineers.
FabHK 9y ago
There's this notion of affinity fraud, where con men approach victims from the same group (ethnic group, church, school alumni, etc.), and via this connection immediately get a trust bonus that's then exploited. On one hand, I'm inclined to say: Beware investing with friends of friends. On the other hand, the best investment opportunities often are not public, but only available to a select circle. I think that's one reason affinity fraud so often works. https://en.wikipedia.org/wiki/Affinity_fraud https://en.wikipedia.org/wiki/Affinity_fraud

PantaloonFlames 9y ago

According to the text of the article, the Benedeks lost $20MM and Reissfelder lost $12MM. The sums you quote ($656MM and $85MM) are what they sold their companies for, respectively; maybe those numbers are from public records. But, the primary sellers didn't necessarily retain all that money. There were other stakeholders, legal people to pay, and so on. Also it says the Benedeks bought another German company after they sold their own company. So I guess that cost them a few million, too. Your point is still valid - these people handed over substantial sums, between $10MM and $20MM each to a custom investment house. What amazes me is...where they thought the money was coming from, for the helicopters and private jets. If a single client justifies a private jet... well, for a going business, the money for the jet (whether chartered or owned) is coming out of that single client. $40k is 0.4% of $10MM. That's a pretty high cost for one meeting. If the company treats all of its clients this way - each client has to pay that 0.4%. If the company treats only one its clients this way, or only a few of its clients this way, then it's a shady company. Either way, it smells, and it seems obvious from a distance. It's true that the article is the source of the $40k number for the jet, but fees for private jets (chartered or not) are not hard to estimate. Just read the economist, you can see the $$ in the ads. I don't have $10MM to invest, but the unsustainable overhead seems obvious to me. It would be reckless to ignore it. If the investment is $1B... a private jet seems required. $40k against that is tiny. I would EXPECT a private jet if I were investing a billion dollars. But for $10MM?

athenot 9y ago
The generalization of that is when you see high customer acquisition costs relative to what you think a vendor might earn from you, ask yourself why.
rasz 9y ago
Its part of the con, when someone asks you explain the show is for $1B whales, and this small 10mil investment is practically a favour on the side.

the_watcher 9y ago

Did I misread the article? I didn't get the impression that they handed over the entirety of those figures. Reissfelder lost "only" $12M. It seemed to me like they invested a lot of money, but nowhere near the entirety of it.

walshemj 9y ago

Yes this is bizarre I know who id call if I one the big euro lottery (the chairman of an investment trust I hold shares in) and I know roughly where the first 400k I would invest on my own behalf. It sucks but did this guy not know who the really safe banks are for this sort of thing? if it had been me I would have been of to coutts or drummonds the day after selling my stake.