Why Some People Always Make Money in the Stock Market
They cheat. They steal the investors's money and use it to pay their own personal expenses
In an ironic twist on cross border scams, the SEC filed "an emergency action against Daniel Eric Byer, Malcolm Cameron Boyd Stevenson, Preston David Pinkett II, and International Fiduciary Corp., S.A. ("IFC"), alleging that the defendants defrauded over 180 investors in a fraudulent "Prime Bank" scheme which appears to have raised at least $18.2 million to date. IFC is a Virginia corporation with offices in Arlington, Virginia. Pinkett, who also lists an Arlington, Virginia address, is IFC's chairman and CEO. Byer and Stevenson are Canadians."
On November 1st, 2006 the British Columbia Securities Commission issued a temporary order against Byer, Stevenson, Pinkett and International Fiduciary for their prime bank investment scheme. A full hearing is scheduled for December 14th, 2006.
According to the British Columbia Securities Commission,
"10. The IFC Investment advertises numerous characteristics often attributed to Prime Bank investment schemes to make them appear legitimate, including:(a) the opportunity to become part of a select group involved in an investment program that is normally only available to the rich and/or financial institutions;
(b) investor funds are purportedly invested in "an asset growth program by buying and selling 1st Tier medium term bank notes";
(c) the promise of an inordinately high interest rate;
(d) the guarantee that investor capital is not put at risk, rather remaining "in full equity value or greater than full equity value";
(e) investor funds are used to leverage offshore trading in the "medium term bank notes" at ten times the amount invested;
(f) IFC provides investors materials stating that Pinkett has had a "5 year affiliation with the International Monetary Fund"; and
(g) investor funds are directed first to the United Bank NA in Arlington, Virginia, and then to either the Banco Bilboao Vizcaya Argentaria or Great Florida Bank, at the discretion of IFC.
11. Prime Bank investments are fictional. Secret, exclusive overseas markets for discounted financial instruments do not exist. In promoting and selling the IFC Investment to residents of British Columbia, the Respondents acted contrary to section 57(b) of the Act." (my emphasis)
Stripped to its bare, dry and financial details prime bank scams appear impossible to pull off, but even the SEC is amazed that these frauds continue to work. In this case, 182 investors for three years, at $100,000 a pop.
There are a number of influence factors at work in a prime bank scam, but what caught my attention is contained in a).
The prime bank fraud works for the same reason "Limited Special Engagement, Ends Soon" packs them in at theatre. Scarcity when it triggers a potential loss, according to Cialdini, makes information or goods much more attractive.
Who wouldn't want to be part of a select group, getting an invitation normally quite out of your reach? Like being invited to Augusta for the Masters for the average duffer.
In Donald Dunn's book on Ponzi, there is charming description about how Charles Ponzi achieved this illusion. During the Christmas holidays, he walked into one of the favourite watering holes holding a number of impressive but quite fake promissory notes from the Securities Exchange Company to equally mythical investors. While chatting up the locals, Ponzi accidently dropped a number of these promissory notes on floor. The denizens of the club were suitably awed -not awed enough to invest there and then on the spot, but primed for the next event.
For they had seen the invitations to the 50% club. Invitations which could be theirs. Only Ponzi hadn't offered it to them, yet.
Technorati Tags: british columbia securities commission, byer, arlington virginia, prime bank, fiduciary, investors, ifc, virginia corporation, investment scheme, ironic twist, malcolm cameron, emergency action, personal expenses, cross border
