
Forex Investors May Face $1B Loss as Trade Site Vanishes - conistonwater
http://www.bloomberg.com/news/2014-11-13/forex-investors-may-face-1-billion-loss-as-trade-site-vanishes.html
======
mpclark
So these folks have been duped, and the publication is exposing it as the scam
that it is.

And then, under the article, "UK public snaps up bargains using bizarre online
trick - madbid.com" and "How new iPads are selling for under £30".

I'm getting mixed messages here.

------
netcan
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.

~~~
pmorici
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
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.

------
vinhboy
And I thought MtGox was bad.

I don't want to victim blame, and I certainly feel terrible for these people,
as I have been a victim of scams myself. But jeebus, I do more research into
buying an iPhone case than these people did for wiring money to a foreign
country.

~~~
pmorici
"I thought MtGox was bad."

For context this is roughly 2 - 3x bigger than the Mt Gox loss of 850k
Bitcoins.

At the same time it isn't as bad as the MF Global fraud that cost investors
1.6 billion.

------
simlevesque
Let me introduce the "business presentation" :
[https://www.youtube.com/watch?v=fkBjbnvnrBk](https://www.youtube.com/watch?v=fkBjbnvnrBk)

~~~
bcantrill
Wow, that's mesmerizingly bad! That uploader has "business presentations" from
many similarly obvious scams, including Empire Finance[1], Royal Fund[2],
Sixa.biz[3] and Avan Fund[4]. (Note to self: don't invest in funds advertised
with synthetic speech!)

[1]
[https://www.youtube.com/watch?v=zQZMtMLrykM](https://www.youtube.com/watch?v=zQZMtMLrykM)

[2]
[https://www.youtube.com/watch?v=yOb9y7cUH2Q](https://www.youtube.com/watch?v=yOb9y7cUH2Q)

[3]
[https://www.youtube.com/watch?v=5xRnLFdPT8s](https://www.youtube.com/watch?v=5xRnLFdPT8s)

[4]
[https://www.youtube.com/watch?v=VryexnFw13M](https://www.youtube.com/watch?v=VryexnFw13M)

~~~
conistonwater
Relevant quote from [1]:

 _dynamic [boom] daily [boom] profit [boom]_

------
rwmj
All you need to know is the website claimed: _" It made trading decisions for
investors and guaranteed their principal."_

~~~
cesarb
Legitimate funds like that do exist. I took a look at one of the biggest banks
on my country, and found five "protected principal funds" (if you can read
Portuguese, it's at
[http://www.bb.com.br/portalbb/page3,116,2198,1,1,1,1.bb?codi...](http://www.bb.com.br/portalbb/page3,116,2198,1,1,1,1.bb?codigoNoticia=12249&codigoMenu=1092&codigoRet=9848&bread=1_13)).

There are several caveats. According to what I read on that page, these funds
use a combination of derivatives and fixed income to protect the principal. On
the "risk factors" part, it says the principal cannot be guaranteed if you get
out of the fund early; even if you wait until the end and get back the
principal, it won't be adjusted for the inflation (6.5%/year and growing); and
you always have to pay for the fund administration (1.5%/year for the fund I'm
looking at).

Of course, the average return for these kinds of funds will be less than the
return for funds which do not guarantee the principal. A quick search found an
article ([http://www.valor.com.br/valor-investe/o-consultor-
financeiro...](http://www.valor.com.br/valor-investe/o-consultor-
financeiro/1040598/capital-protegido-e-bom-para-voce)) with a comparison
between one of these protected capital funds and a balanced stock/fixed income
fund (last graph in the article). Most of the time, the balanced fund won.

So, guaranteeing the principal is not a red flag. What should have been a red
flag is the return rate: 1%/month is too high, even more it they are
guaranteeing the principal (which should decrease the expected return). High
return rates tend to be correlated with higher risk.

~~~
shawabawa3
> 1%/month is too high

Yes, and they advertised 1%/ _day_

How anyone could possibly believe that I don't know

~~~
cesarb
That was a typo, I meant 1%/day.

In my country, there are safe investments with guaranteed returns of over
12%/year (prefixed federal bonds). For instance, if you buy a LTN 010118 right
now, it will return 13%/year (before taxes) when it expires on 2018-01-01 (the
current buying price is R$ 684,17, it gives back exactly R$ 1000,00 when it
expires).

Of course, that's if you don't look at the inflation. With inflation currently
at 6.5%/year and rising, the true return is more like 6.5%/year before taxes,
and more like 4.5%/year after the 15% tax on investment gains above 2 years.
So yeah, if you do consider inflation, 1%/month is too high.

------
vesinisa
This is such common type of scam that it even has a Wikipedia article:
[https://en.wikipedia.org/wiki/Foreign_exchange_fraud](https://en.wikipedia.org/wiki/Foreign_exchange_fraud)

Why do people keep falling for the same scam over and over again?

------
funkyy
This have HYIP all over its face. The website is typical HYIP scheme. People
lost the money because of greed. Investing in some shady business for good
returns is just wrong.

Anyone with at least a bit of sense in business would avoid this... Anyone
else would lost their money anyways, in either this or other get rich fast
scheme. It looks like very expensive lesson to many...

~~~
GFischer
I had to look up the HYIP acronym, and yes, it looked like a ponzi-like scheme

[http://en.wikipedia.org/wiki/High-
yield_investment_program](http://en.wikipedia.org/wiki/High-
yield_investment_program)

------
bruceboughton
CEO of forex trading site: Michael Sterling

Nominative determinism hits again.

~~~
notastartup
white beard clearly showing experience from weathering the storms of forex
market.

fat stature implies he has been fed nothing but high quality dinners at
premium restaurants, a sign of success.

------
Roonerelli
if something seems too good to be true....it probably is

Feel sorry for those who lost money, but, I can't imagine transferring money
to someone making such promises

~~~
mjklin
To a shady bank in Latvia, no less. This goes to show that if you dress
something up the right way you can sell it to anyone.

In Spanish we say "even though the monkey dresses up in silk, it's still a
monkey." But people are blinded by their own greed and can't see through the
sham.

~~~
conistonwater
> To a shady bank in Latvia, no less.

I kind of understand what you mean, but this is a little unfair to Latvia.
It's a member of the EU and the eurozone, its banks are (don't laugh please)
supervised, and the bank itself was very likely not shady at all. Rather, the
bank's customer, which opened an account with the bank, was a shady fraudulent
business.

The issue with transferring money like that is that it makes investigations
harder and slower, as there are more jurisdictions in play. But I think the
bank that processed the transactions was basically quite all right, unless
there is specific evidence to the contrary.

~~~
mootothemax
_I kind of understand what you mean, but this is a little unfair to Latvia._

Completely agree, it'd be just as possible to perform such a scam with bank
accounts in e.g. the UK or the US.

It doesn't take much. Here's a 16-year-old complaining about his bank's
conduct after he was basically caught processing fraudulent payments via his
bank account:

[http://www.theguardian.com/money/2012/jul/07/strange-bank-
ac...](http://www.theguardian.com/money/2012/jul/07/strange-bank-account-
money-mule)

------
PMan74
>The site said investors had averaged net gains of 1 percent each trading day
during the past five years.

How seemingly intelligent people (the guy was a doctor) read this and don't
think "too good to be true" is beyond me.

------
us0r
A screen of their website:

[http://www.domaintools.com/research/screenshot-
history/secur...](http://www.domaintools.com/research/screenshot-
history/secureinvestment.com/#0)

~~~
GFischer
It hits all of the right buttons:

\- International phone numbers prominently displayed

\- Security certificate at the bottom

\- Success Stories with names

\- Social buttons with thousands of "likes"

\- People photos prominently displayed

and, while screenshots do not show them, there were addresses for offices in
several countries

It was an extremely well-designed scam, it hits all of the points other
articles on HN mention to gain trust for startups :)

------
atlantic
>Because Secure had no real headquarters and existed on the Internet only, an
investigation would be challenging.

This is where they lost me. How can a company involved in billions of dollars'
worth of transfers be hard to trace? It's not like they can make a cash
withdrawal and close down their account. Ordinarily, there is an enormous
amount of official scrutiny around large international capital movements. This
lack of enthusiasm in following the paper trail suggests governments are
involved at some level.

~~~
lucozade
That's one possible explanation. I'd like to offer another...there weren't
billions of dollars.

That "fact" came from their website. Along with the P&L from their trading and
the endorsements. What makes you think that the rest is fake and that bit
isn't?

They probably had a few million across a dozen accounts in half a dozen
countries. Well worth setting up a scam but hardly Bernie Madoff.

And even if it was more serious money, they weren't actually investing it so
they only needed to keep enough around to Ponzi returns until the scrutiny got
too much.

------
bedane
"1% per day average, no risk of deposit loss. "

I already thought forex trading individuals weren't the sharpest, but COME ON
PEOPLE.

