
How to Hide $400M - scarmig
http://www.nytimes.com/2016/11/30/magazine/how-to-hide-400-million.html
======
n00b101
The more interesting question is what is the source of all this money?

Osterlund has a net worth of $400MM. His company, Xacti, geneated revenues of
$75MM per year. The article explains that Xacti "sold banner ads, video games
and various other kinds of software, including “toolbars” that promised to
clean viruses off your computer or free up space on your hard drive." I don't
think the article really explains how this malware could generate such huge
amounts of wealth.

The company's website [1] is nothing short of pathetic. The NYT article does
mention that Xacti had legal troubles and was investigated for some deceptive
marketing practices (like default opt-in credit card charges for trial
software). At best, Osterlund is an Internet con artist.

But this still leaves questions in my mind. Can a simplistic malware fraud
generate half a billion dollars of wealth? This mystery is compounded with a
maze of sophisticated offshore banking structures, which sounds like more than
just a way to hide assets from his wife. For example, could these structures
have been used for money laundering by organized crime? Was this malware used
for criminal activities beyond simply asking customers to enter their credit
card numbers and charging them a few dollars?

His wife was allegedly involved in his business, and is trying to get a share
of his assets in divorce proceedings. If this money had a darker story behind
it, that she knew of, she would have an incentive to leave that out of this
NYT story.

[1] [http://www.xacti.com](http://www.xacti.com)

~~~
cardine
> Can a simplistic malware fraud generate half a billion dollars of wealth?

Absolutely. Traffic Vance was a great example of this. They installed adware
on users computers and advertisers could bid on what sites you wanted your
popup ad to display on and their adware would display your popup and charge
you the money.

There are shady individuals who bid $10+ for a single popup on a site like
StateFarm.com with a fake "rate comparison" and the infected user would assume
that the ad was associated with State Farm despite the tiny disclaimer at the
bottom.

On a site like CNN a shady weight loss supplement company might have a popup
with a fake news story that pushes a misleading negative option subscription
that is setup in a way where the infected user assumes it is a CNN story.

The adware itself is designed to be as subtle as possible so that the user is
unaware that anything suspicious is going on and views these ads as
legitimate.

Traffic Vance has since been renamed several times due to this type of
scrutiny, are well past their glory days, and don't push their adware anymore.
Despite all of that they are still making millions[1] from all of the people
who have downloaded their adware over the past 10 years that still haven't
deleted the adware or gotten a new computer.

[1] [https://www.propelmedia.com/propel-media-
reports-6-1-million...](https://www.propelmedia.com/propel-media-
reports-6-1-million-of-adjusted-ebitda-for-the-3rd-quarter-of-2016/)

~~~
downandout
But even in Traffic Vance's case, I'm not sure that they have generated _$400
million_ over the life of the company. Even at $6M/quarter in EBITDA, it would
take ~16 years to get there. I'm not sure what else this guy was into, but I
doubt he made it solely with malware.

That said, nobody actually needs $400M, and there are plenty of people making
$1M+/yr operating useless websites like viral news, quiz sites, etc. There is
a ton of money in online advertising. Most goes to Google and Facebook, but
there are still billions left over for the "little" guys. The rise of
retargeting through Adsense has enabled even the most worthless of sites to
show ads that generate reasonable RPM. If you can generate impressions, you
can make quite a bit of money.

~~~
was_boring
Is there any literature on this? I always figured Google and Facebook
dominated the market so heavily everyone else was left with scraps (twitter,
for example).

~~~
hanginghyena
Actually, those guys make only a tiny slice of the value per click. Banner
advertising is a low return game.

Now...if you control the landing page and conversion funnel, basically
delivering paid customers (vs. clicks) to a paying merchant, your value per
visit goes up by a factor of 10 - 50. $.25/click vs. $10 - $30 (varies by
product).

Now imagine a company that launches dozens of offers with hundreds of
variations and plows it's bankroll back into the best (most profitable)
version (for years at a time).

Yeah, $400MM is possible.

~~~
paulsutter
You make a great point that advertising and ecommerce have no clear
demarcation. Revenue for all online commerce is divided among layers of
players performing specialized steps in the process, so any sizing of the
online advertising market starts with an arbitrary distinction.

------
Terr_
> Xacti, which came to enfold most of their ventures, sold banner ads, video
> games and various other kinds of software, including “toolbars” that
> promised to clean viruses off your computer or free up space on your hard
> drive.

Sometimes I can't tell whether I'm an ethical and honest person, or whether
that's just an excuse for not being rich.

> By his wife’s account, some of Oesterlund’s new friends also began tutoring
> him in how to minimize his taxes.

That reminds me of how cheating in video-games spreads like a disease,
socially-transmitted. [0] People enter into sub-groups where the behavior is
seen as normal.

[0] [https://arxiv.org/abs/1112.4915](https://arxiv.org/abs/1112.4915)

~~~
theparanoid
Paul Le Roux is a case study of why not - [https://magazine.atavist.com/he-
always-had-a-dark-side](https://magazine.atavist.com/he-always-had-a-dark-
side).

~~~
Terr_
I've skimmed the link, but I'm still a little unclear: Why not what?

~~~
NamTaf
I interpreted it as 'why not to lose your ethics and pursue richness in
questionable areas'

------
JustSomeNobody
> Like many women married to very wealthy men, she didn’t know much about the
> family accounts.z

Makes it sound like she married him for the money, but she didn't[0]. While it
turns out she really didn't know much about the accounts[1], she help start
the businesses that made the money[2].

[0] > Robert Oesterlund wasn’t born rich, either. When Pursglove first met
him, on a cruise ship off Helsinki in the ’90s, he ran a struggling flower-
import business.

[1] This is truly stupid. In a marriage, a couple should share completely all
of this information. Otherwise, do not get married.

[2] > Living in Florida and New York, they started a series of companies.
Oesterlund came up with most of the ideas, Pursglove would later state in
court filings, and ran the companies day to day. Pursglove hired the
employees, trained them and helped manage the offices.

~~~
chris11
I think that $400 million could be a lot more complicated to handle than most
family accounts, especially if the family was aggressively trying to minimize
their tax liability, which they were. And the finances really started to get
complicated because the husband started to hide the money when Pusgrove found
out about the affair. Also, the legality of the business is questionable. It
looks like the money was made from adware. So I would not expect Pusgrove
would want to take much credit for the management of the company.

~~~
hanginghyena
Surprised actually. If she really did run the company "day to day", seems like
she would be in a position to give him the boot (grab the accounts) vs. what
actually happened.

------
Dowwie
A fraudster-millionaire shares a fictionalized account of her side of a soap
opera story too wild for television but just right for NY Times magazine

------
trhway
A recently arrested colonel of the Moscow anti-corruption police had $100M+ in
cash in his apartment (i wonder - may be he just was working from home much?).
Another $300M+ were in his bank accounts because I guess they just couldn't
fit into the apartment - Russian city apartments are typically on the smaller
side... I mean it is really hard to hide giving that $100M weight ~2000lb in
$100 bills.

~~~
gruez
...or you know, it was planted.

~~~
trhway
Planting a 1.5 ton of cash? Wouldn't a 100kg do it or even just a bucket of
cash?

------
cthulhuology
In case you're wondering, most firms in this business won't even talk to you
unless you're looking to hide at least $10MM. Below that amount, the costs of
setting up the corporate structures and paying all the necessary parties
aren't worth it. It is kinda funny there is a practical cut off point for
being "super-rich" at which point the rules start working for you.

~~~
hkmurakami
If you're looking to hide $10MM+ with one firm, then diversification says that
you have a lot more than that in total. So imo the "super-rich" cutoff is
around $100M

~~~
dx034
I'm not sure that you need to diversify for that. It makes sense to have one
really good lawyer who knows how to distribute it. The money will end up in
different countries, trusts and with a number of partners. But if you don't
want to deal with the complexity yourself, you likely need to have one expert
who does. That's also why you need so much to start, it's not just about
setting up one company, it's about creating a whole net of companies .

------
epx
I don't really understand why someone would not just stay with $200M without
hassles, instead of hiding $400M. The value of money is logarithmic. What can
be bought with $400M that cannot be bought with $200M??

If it were a case of wife wanting 99% of his assets, it would be reasonable to
fight. If I lived some of these FoaF stories where the husband is wiped out,
then I'd rather go to jail (and profit from an MRA blog some years later)

~~~
Waterluvian
To many of us, money is a tool. You convert time and effort into money, store
it, then convert it back into other things when necessary or desired.

To many others, money is a high score.

------
sosuke
I got stuck part way through. "She packed the laptop and documents, left her
suitcase near the front door and went for one last walk on their beach." then
a couple of lines later "When she opened her suitcase at the security line,
there was no laptop. No paperwork. It was all gone."

But then the subject changes, timeline changes and I can't find what ever
happened to the laptop.

~~~
rphillips
The article alludes to the fact the caretaker or the older gentleman removed
the laptop and documents, or someone else in the employ of the husband.

~~~
dx034
Was a bit confused by that. The way both of them are described I'd guess that
they're not the nicest employers. If your employer is far away, probably
doesn't pay you very well, why show such loyalty to prevent that from
happening? The husband probably hadn't found out about it otherwise.

------
gnicholas
Note that the transfer pricing strategy only makes sense for this fellow
because he's not a US citizen/resident. If he were, it would be illegal to not
report the income of the (wildly-profitable) off-shore entity. And if you have
to report the income on both sides, there's no point playing transfer pricing
games.

But due to his foreign residency and citizenship, he only has to report the
US-based income to the IRS, and the transfer pricing shenanigans are "legal"
but subject to repricing by the IRS.

~~~
eonw
you can keep the money off shore and pay the taxes later though, no?

~~~
gnicholas
Not for individuals — US taxpayers have to pay tax on their worldwide income,
though they can get credit for foreign taxes paid to other governments. When
the income is received by an entity in a tax haven, there is generally no
credit to be had.

Speaking generally, if a corporation is owned by fewer than 10 US taxpayers,
there is no effective deferral. This is based on the assumption that closely-
held companies are being operated at the behest of the owners and will be
structured in a way that is tax efficient for the individual owners.

Public companies are not subject to these rules, and they can defer paying tax
on some types of income.

~~~
eonw
yea i was more thinking of "earning" it and keeping it in the entity until its
needed or wanted. that would allow you to defer taxes, yes? i was under the
impression that it is not income until its paid to me as salary or dividends,
that could be wrong though.

------
chris_va
Interestingly, the couple might not be worth anything near $400M, and they
haven't yet cracked the trust.

If I had to guess, I'd assume that everything was bought on credit, and the
true net worth is somewhere south of $40M.

------
spaceflunky
Oesterlund's yacht the "Deja Vu" is practically a major character in this
whole story.

In case you're wondering here are some pictures of the Yacht. Keep an eye out
for the gaudy paintings of Oesterlund in the yacht.

[http://www.boatinternational.com/yachts/the-superyacht-
direc...](http://www.boatinternational.com/yachts/the-superyacht-
directory/deja-vu--66631)

~~~
clort
and by the way, all vessels over a certain size are required (by international
maritime law) to have an AIS transponder fitted and enabled.. and there are
internet sites which listen and post information, so we can see that Deja Vu
is currently marked in Fort Lauderdale

    
    
      http://www.marinetraffic.com/en/ais/details/ships/shipid:386175/mmsi:319642000/imo:1006556/vessel:DEJA_VU
    

though it seems that it has now been renamed as 'Broadwater'

[https://www.fleetmon.com/vessels/broadwater_1006556_25127/](https://www.fleetmon.com/vessels/broadwater_1006556_25127/)

so perhaps has been written out of this story..

------
arbuge
Actually $400m is quite easy to hide, if denominated in $100 bills. It would
fit in a small 1-car garage. You could squeeze $1B in if you had a regular
2-car garage.

Souce: [http://thehustle.co/how-much-is-a-billion-
dollars](http://thehustle.co/how-much-is-a-billion-dollars)

~~~
dx034
Means you lose ~2% per year (inflation) and have a problem if new notes are
issued. Also, if anyone finds out your money is gone very quickly (or if the
garage burns down). I'd rather buy some precoious metals. Easier to hide,
although the weight means you have to be careful where you hide it.

------
jorblumesea
So basically, shady fraudster millionaire engages in more shady fraudulent
activities, and takes steps to avoid any repercussions from illicit behavior.
Not shocking at all.

~~~
erikb
Not completely. It's more like seemingly righteous woman seeks compensation
for hard work she did together with her soon-to-be-divorced husband, but no,
actually both are fraudsters that now try to fraud each other.

------
eb0la
This looks a more readable and entertaining version of this academic journal:
[http://www.emeraldinsight.com/toc/jmlc/19/1](http://www.emeraldinsight.com/toc/jmlc/19/1)
;-)

------
6stringmerc
Will definitely be checking this article out in full. The techniques are of
particular interest to me. It might sound exotic to outsiders but I do like
the suspension of disbelief that kind of comes along with fantastic wealth.

I've used "hide vast sums of money" as the basis for a long, serious
screenplay based on the Enron downfall of the early 2000s in the US. Currently
in review for edits. If you'd like to read I can make it available by request.

[https://www.scriptrevolution.com/scripts/do-unto-
others](https://www.scriptrevolution.com/scripts/do-unto-others)

~~~
elemeno
You don't have an e-mail address in your profile, else I would have used that
instead.

As someone who works in finance, and has a keen interest in how the murky side
of that world works, I'd love to read your screenplay.

~~~
6stringmerc
Ack yes about that I tend to use Twitter as the fence to connect then will
provide email/DropBox link. If that's not a path for you I can say it'll be
public early in 2017 I think.

------
NTDF9
A very interesting question about divorce asset-splitting:

How are assets split if the woman (in the above story) cheated instead of the
high net worth man and the man filed for divorce? Who gets what?

~~~
epx
Typically, cheating is not a factor.

~~~
NTDF9
No wonder marriage is a shit deal. If love is the only thing uniting us, in a
fall out, love should be the only thing that is lost.

~~~
sangnoir
Sign a prenup if that's your deal.

------
PaulAJ
This puts me in mind of Bleak House
[https://en.wikipedia.org/wiki/Bleak_House](https://en.wikipedia.org/wiki/Bleak_House).
It sounds like the legal manouvering has entirely consumed the value of the
estate.

------
asdfzxc
I didn't quite understand this bit, where she discovers all these papers and
laptops full of important documents and then just leaves to take a walk!

------
jlebrech
i'd just pack my stuff and leave the country the second i'd transferred the
money offshore.

once you're a resident of another country you only have to share your wealth
with the country you move into.

------
cagataygurturk
Walter White, are you there?

------
Vera527
The story does not add up. What kind of person decides to go on a "beach walk"
after finding documents that says their husband is worth 300M dollars? My
reaction would be to get the document, and at least take a picture, and get
the fuck out.

~~~
hkmurakami
People respond in different ways in highly stressful, shocking situations.

I have a "flight" response in high stress fight or flight situations, and can
empathize with her response.

~~~
erikb
Good argument. People do irrational things. But still, it's smart to assmue
that taking pictures of interesting documents never hurts. I'm not worth $10k
and already do it regularly.

------
sean_patel
> In any given year, trillions of dollars sit safely in the offshore financial
> world, effectively stateless, protected by legions of well-compensated
> defenders and a tangle of laws deliberately designed to impede creditors and
> tax collectors.

This. I always worry that if/when I get married -- in California where the
Divorce laws are heavily in favor of the woman -- that I will be middle-aged,
penniless, and will have to start over in my only known career (software
development) that is brutally ageist.

So my sincere question (not trolling) to HN peeps. Are there any such banks /
off shore options for the 99% not-so-wealthy crowd, whereby I could "squirrel
away" just a few 1000 $ (maybe like 40, to 50K) so that in my worst-case-
scenario, I don't have to start from 0. I understand there is no incentives
for the "well compensated defenders" since the $ amount of such accounts won't
be in millions, but surely there must be some countries / banks that offer
this?

(NOTE: The intention is more to safeguard my individual future from a bad
marriage and divorce and not greed. Hope you understand).

Thank you!

~~~
linkregister
This is premature optimization. The California divorce regime is "community
property", that is anything not covered under a prenuptial agreement is
divided 50/50\. A visit to a men's rights website will unearth horror stories
of abusive alimony decrees but these anecdotes are unrepresentative outliers.

A prenuptial agreement would safeguard you more than attempting to hide money
overseas. Another safeguard would be to marry a person who wouldn't be
eligible for alimony due to preexisting income.

I consider this sort of optimization to be an inaccurate threat model, focused
on outliers rather than the expected case. The expected case in California or
any other state would be that the marriage would survive if not flourish (the
most common case for upper-middle-class marriages), with a contingency that a
divorce would occur amicably (the second-most common case). Screening for
contentious attitudes is part of the due diligence of dating.

(only on HN would I ever expect to post something like this instead of the
common-sense "find the right spouse and work on your marriage and you won't
have to worry about this issue")

~~~
cwmoo740
You're sorely wrong. Divorces in several states, California included, are like
mutually assured destruction with one side having twice the firepower, and
_everything_ about a relationship can change in a divorce.

To OP: you don't have to hide your assets in offshore accounts, you can talk
to an estate planner and look into setting up a trust (google domestic asset
protection trust) and make yourself the sole beneficiary. You would no longer
"own" the money and it's protected in a divorce.

Also prenups are typically worthless in the madness that is family court.
Never ever ever rely on one.

~~~
mysterypie
> Also prenups are typically worthless in the madness that is family court.
> Never ever ever rely on one.

Are you saying that prenups are worthless in the case of child support or that
prenups are worthless in all cases? In the case of child-related issues,
you're right. However, in the case of dividing assets, I think you might be
mistaken.

I've read stories of super wealthy people with prenups who did not get
screwed; i.e., the prenup held up. The best example I can find is a certain
billionaire who got divorced, but I cannot mention his name without creating
irrevelant political discussion. He had an ironclad prenup and it held. That's
the point I want to make. Prenups still work.

~~~
xenihn
>I've read stories of super wealthy people with prenups who did not get
screwed

That's because we (the USA) have a two-tiered legal system.

------
module0000
This annoys the hell out of me... someone with the net economic value of a
"cruise ship photographer" wants to get half(or more?) of their spouse's
assets. Old news...people sleep with you and live in your home, and demand
half of what you worked to create.

~~~
hluska
Someone with the net economic value of a cruise ship photographer??? Before
they got married, Oesterlund ran a struggling flower importer. Is it really so
hard to believe that Pursglove was fairly heavily involved in his post-
marriage success? Particularly in light of quotes like:

"Pursglove hired the employees, trained them and helped manage the offices."

~~~
module0000
> "Pursglove hired the employees, trained them and helped manage the offices."

And yet she had no idea about where the money went, the people paid to manage
it, or really _anything_ else. She was scorned, I get that, and she wanted
half of what was _his_...not hers.

~~~
hluska
Again though, is that really so hard to believe? Oesterlund funded one of the
relevant trusts (to the tune of $48 million) the day that Pursglove found his
new girlfriend. Give this quote a read:

"Another bank statement they handed over showed that on a single day in 2014,
Oesterlund transferred $48 million into one of the Cook trusts. It was the
same day, Fisher quickly realized, that Pursglove discovered Oesterlund with
his new girlfriend. Fisher believed this would be strong evidence in court
that the trust had been set up in anticipation of owing his wife money, which
even in most offshore jurisdictions is against the law."

Or, consider this quote:

"It turned out that in early 2013, after Pursglove asked Xacti’s executives to
inform her of any large cash transfers or major business decisions, Oesterlund
ordered Middleton to cut her off. Over email, he told Middleton to ban her
from their Boca Raton offices and to remove Pursglove as a signatory to the
company bank accounts."

Oesterlund went out of his way to freeze Pursglove out of the bank accounts
and even funded a $48 million trust when she found out that he had a
girlfriend. How could anyone reasonably conclude that she should have an idea
where the money went? It seems way more reasonable to conclude that he
conducted an organized campaign to keep her from knowing that information.

A less charitable interpretation would be that Oesterlund and Pursglove knew
they were involved in an illegal operation and wanted to give Pursglove the
chance to say, "I don't know" if she were under investigation by the Secret
Service, etc.

