November 29, 2010
Investment Shopping on Cyber Monday? As Always, Buyer Beware
The SEC announced last week that a federal court granted a request for an asset freeze related to a suspected Denver-based Ponzi scheme that offered both European bank notes trading and "diamond trading." The defendants -- Richard Dalton and Universal Consulting Resources LLC -- apparently raised $17 million from investors who received monthly payments that were claimed as profits from the “Trading Program” and the “Diamond Program.” The payments, the SEC claims, were actually funded through monies received from new investors in the programs.
Here's the promise made to investors, as per the SEC press release:
According to the SEC’s complaint [pdf here] filed in U.S. District Court in Denver, Dalton told investors in UCR’s Trading Program that their money would be held safely in an escrow account at a bank in the United States, and that a European trader would use the value of that account — but not the actual funds — to obtain leveraged funds to purchase and sell bank notes. According to Dalton, the trading was profitable enough that he was able to guarantee returns of 4 to 5 percent per month — or 48 to 60 percent per year — to investors. Dalton claimed that he had successfully run the Trading Program for nine years.
The Diamond Program promised even better returns (everyone knows actual diamonds are better than trading bank notes, right?). The SEC says that Dalton promised investors "a guaranteed 10 percent monthly return — or 120 percent annual return."
Of course, the "business" was not nine years old; it apparently began in 2009. Nice timing, too -- the market's down, people are looking for promising investments outside the stock market, and here comes someone providing monthly payments based on money held "safely" in escrow. To make the program work, Dalton used prior investors to find friends or family members. These new investors, as you might expect, were wooed by both this connection and the regular monthly payments.
Obviously, if all of this is true, it's fraud and the defendants should be punished severely. But I can't help but wonder, does anyone have deals like this that actually work? I know some people have made 120% annual returns (and more) on investments in a variety of settings, but I'm curious of any situation when that kind of return was promised, virtually risk free, and then delivered. I cannot imagine any such scenario.
Then again, maybe it's just that I don't have the kind of money to invest to find out. But I rather doubt it.