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This was obviously a ponzi-esque scam. That's just old fashioned financial crime. There was something that umped out at my though, now that we're in a time wher

by netcan 12y ago

This was obviously a ponzi-esque scam. That's just old fashioned financial crime. There was something that umped out at my though, now that we're in a time where we've thought about long tail or black swan risk quite a lot. "Secure Investment said it offered something safer: It made trading decisions for investors and guaranteed their principal." Ultimately the long tail perverse incentive (I don't know if there's a name for it, but it's the same perverse incentive that performance bonuses create) is a tricky one and I think it permeates a lot of things. Say, these guys came out with a more credible claim. They guarantee 80% of your principle and target 10%-20% returns. There probably are trading strategies that produce nice results in the -20% - 20% range with a long tail risk of 100% loss. Over twenty years, they might average over 10% returns with nice fees or bonuses (regardless of how this is set up) with an occasional cost to honoring the guarantee. One year out of twenty, they wipe out all investors and the game is up. The company takes home whatever it's made up until that point and investors lose their entire principle. This kind of risk is difficult for us to understand. Regulation chokes on it. Investors choke on it. A 43 year old fund manager looking at his competitors' successful 17 year run is very likely to choke on it.

heelhook 12y ago
That likely wouldn't work though. IMO the reason these people were so successful in deceiving so many "investors" is selection bias, much like Nigerian-scams using Nigeria as the country of origin to only engage very gullible people. If they were to "only" guarantee 80% of the principal most victims would have gone away.
- netcan 12y ago
  That's true. This is not that kind of scam. This sounds closer to plain theft by fraud. I just think the made-up story they are telling, these lies, are usually variations and exaggerations of the stories told by "legitimate" players. It's interesting. Laws, standards and people's brains need black and white. A line after which things are fraud, crime and such. But I think from the perspective of the scammers, they probably saw themselves as part of a spectrum. They probably pay more attention, compete with and emulate their neighbors on that spectrum. Little dodgy funds copy little legitimate funds. Little illegal scams copy little dingy funds. In the wild, the line between this and that doesn't exist. It's like the line between pirate, privateer, wrecker and merchant.
  - mpclark 12y ago
    That line usually works like this: I am a merchant, YOU are a privateer and HE is a pirate.
pmorici 12y ago
The biggest red flag is the fact that they claimed average returns of 1% per day non-compounded. As the article points out that is over 250% per year. For context that is much much better than the Bernie Madoff Ponzi which claimed average returns of just above 10% over 17 years and people thought that was suspicious.
- Dylan16807 12y ago
  What does 'non-compounded' even mean? You can't just stop compounding from happening. Worst case you take your money out and put it back in. Do they mean that you can't compound daily, that the 1% per day applies to compounding monthly or annually? Any interest rate will eventually reach 1% of the original principal per day. Even a rate like 1% per year will average that much after a solid 800 years.
Monkeyget 12y ago
It's known as a Taleb Distribution https://en.wikipedia.org/wiki/Taleb_distribution https://en.wikipedia.org/wiki/Taleb_distribution

by netcan 12y ago

heelhook 12y ago

That likely wouldn't work though. IMO the reason these people were so successful in deceiving so many "investors" is selection bias, much like Nigerian-scams using Nigeria as the country of origin to only engage very gullible people. If they were to "only" guarantee 80% of the principal most victims would have gone away.

netcan 12y ago
That's true. This is not that kind of scam. This sounds closer to plain theft by fraud. I just think the made-up story they are telling, these lies, are usually variations and exaggerations of the stories told by "legitimate" players. It's interesting. Laws, standards and people's brains need black and white. A line after which things are fraud, crime and such. But I think from the perspective of the scammers, they probably saw themselves as part of a spectrum. They probably pay more attention, compete with and emulate their neighbors on that spectrum. Little dodgy funds copy little legitimate funds. Little illegal scams copy little dingy funds. In the wild, the line between this and that doesn't exist. It's like the line between pirate, privateer, wrecker and merchant.
- mpclark 12y ago
  That line usually works like this: I am a merchant, YOU are a privateer and HE is a pirate.

pmorici 12y ago

The biggest red flag is the fact that they claimed average returns of 1% per day non-compounded. As the article points out that is over 250% per year. For context that is much much better than the Bernie Madoff Ponzi which claimed average returns of just above 10% over 17 years and people thought that was suspicious.

Dylan16807 12y ago
What does 'non-compounded' even mean? You can't just stop compounding from happening. Worst case you take your money out and put it back in. Do they mean that you can't compound daily, that the 1% per day applies to compounding monthly or annually? Any interest rate will eventually reach 1% of the original principal per day. Even a rate like 1% per year will average that much after a solid 800 years.

Monkeyget 12y ago

It's known as a Taleb Distribution https://en.wikipedia.org/wiki/Taleb_distribution https://en.wikipedia.org/wiki/Taleb_distribution