In the US, the investor is supposed to be the first line of defense against stock fraud schemes. Unfortunately, the laws were written to help out the lower and middle classes from unscrupulous stock scams, not the wealthy "sophisticated" investors.
SO here's a tip: if you get scammed, don't count on the government to help you. They've got bigger fish to fry. You need to do your own due diligence, get your own lawyers/accountants/etc to look things over, and verify every claim and every representation that someone makes to you. If anything is even a little bit off DONT INVEST.
I was approached to invest money in two separate projects but ultimately didn't because there wasn't any way to ensure that I was going to see a good use of the money. That's how it is: if your only connection to someone is the use of your money, you better make sure that you understand how and when you make money on the deal. Otherwise, you're as good as robbed.
Note that this applies to ALL INVESTMENTS. If the company goes under for good reasons or fraudulent ones, the result is the same. CAVEAT EMPTOR.
This is so true. I remember be really pressed hard to invest in some natural gas wells where each well was "owned" by the investors who were paid out fractionally based on the production, the more wells you were in to the more you got paid. Someone I know was getting $3000 - $5000 checks a month from this operation and I was quite curious. But given the scope of things and the kinds of returns they were promising I was amazed that such a deal would even be around by the time people got to me. So I asked for a picture of the gas works. Which was provided but didn't match where they said it was (go go Google Earth!) and once I tracked down where they said things were going on, it was near the edge of the live fire missile range which a) meant you couldn't go out there to take pictures, and b) the US Bureau of Land Management wasn't about to be writing gas leases on land you might get bombed on. Sure enough, a call into the local sheriff left no doubt. No wells, no drilling, anywhere. And he got another data point for his investigation (I wasn't the first person who called). About 9 months later the whole thing vanished. I mean literally everyone in charge just disappeared. Sad really.
Some additional points addressing various comments and themes:
>I’m glad there is additional dialogue about investor due diligence. Others are absolutely right that if you’re going to invest in a company it is up to you to do your own due diligence. Go visit the company, speak with customers, get references.
>I lost no money in this process and was simply looking out for the interests of a friend and investor.
>The original individual referenced counter sued the State of Idaho for defamation, after the State originally filed suit against him years ago. Obviously the State has far greater resources than I do. As much as I’d like to throw up names, links etc. there is a very real downside and unfortunately is not something I’m willing to do at this time publicly. If some enterprising investigative journalist wanted to take the reins I’d be open to helping them find out information on their own.
>This was posted on Blogger because I didn't want it distracting from other things I’m working on. I also don’t think my personal site would have been able to handle the traffic.
>There are legitimate examples of reverse mergers and stocks that aren't traded on major exchanges. However, the smaller the stock the more chance for fraud, fewer checks etc.
>International incorporation is a regular practice and employed by companies such as Apple and Facebook. However the Cayman Islands are simultaneously a hot bed for fraudulent activity (interestingly as are Vancouver, B.C. and Boca Raton, Florida).
As for Unicorns and sniff tests, if you don’t believe it, that's ok. I wouldn't have believed it either. It's good you're exercising your right to question things which was the basis of the post.
In Unicorns we trust; all others must bring data.
Their "dual mission":
The mission of the United States Secret Service is to safeguard the nation's financial infrastructure and payment systems to preserve the integrity of the economy, and to protect national leaders, visiting heads of state and government, designated sites and National Special Security Events.
I'm going to give the author the benefit of the doubt and assume that he was being facetious. I suggest that he reword that phrase.
Google ngram of the phrase "white collar crime" http://books.google.com/ngrams/graph?content=white+collar+cr...
The OED lists uses of the phrase "white collar" from 1919 onwards.
As for the focus on terrorist funding, notably Paul O'Neill credibly claimed to have achieved some of the most important early victories against Al Qaeda through Treasury Department investigations into their funding. In fact, pushing this approach in contrast to the preferred brute force methods of others in the administration lead to him being fired at the end of 2002.
For example, since then inter-agency task forces have been established, media has begun covering the topics, books have been written and movies produced. http://en.wikipedia.org/wiki/Inside_Job_(film)
The general awareness is much higher (despite little action taken).
Look at the Google ngram that I linked to. In 1997, when you were 13 or so (you mentioned that you were 20 in 2004), the phrase "white collar crime" was at a relative low. Since then, the phrase "white collar crime" has grown in popularity in tandem with your maturation, which would account for your perception that the media is become more aware of it. However, the latest data available show that it is still not as popular is it was in 1996.
It may be the case that people are using the term "white collar crime" increasingly to refer to phenomenon which they used to just call "fraud". Another Google ngram search  shows that "fraud" is orders of magnitude more popular than "white collar crime".
There are plenty of other subjects where the popularity of equivalent nouns varies. For example, what do you call the people who fight wars? Soldiers? Troops? Warriors? .
Political white collar crimes from the 1970s include Watergate and Koreagate.
And as for movies: "Trading Places" was a 1980s movie ending with a foiled white collar crime attempt. "Wall Street" is a 1987 film where Gordon Gecko is convicted of multiple securities violations. "The Insider" is a 1999 film based on a 60 Minutes segment about a tobacco industry whistle blower. John Braithwaite wrote "Corporate Crime in the Pharmaceutical Industry" in 1984.
That you don't know about them doesn't mean they didn't exist or that people didn't know about it.
So, who is he?
I wonder if you could a/b test this with two stories and adwords or something. Completely automated story generation starting with basic plot. That would be a cool startup.
Why not 4 Corners or Panorama? Investigative journalism might not have a capitalist business model anymore, but socialism still gets the job done. Especially for stories that will embarrass rich Americans ;-)
(To preempt: yes, Anonymous is not always good. No, I don't believe that Internet justice is always bad, or that it would be bad in this case, especially as all formal avenues appear to have been exhausted and the perpetrator is scot free.)
This part left me a bit shocked:
His response, "And you found all of this information just by looking on the internet? Incredible." Let me repeat that, this is the former Deputy Director of the CIA.
I hope to hell that the guy was a just Washington bureaucrat and it's not indicative of the CIA's thinking.
However, don't you think that someone who is involved in intelligence gathering would have some inkling of the important of the internet in intelligence?
Being a former Deputy Director means almost nothing about knowledge of current CIA practices and modern methods for intelligence collection.
For example, Carl Freer or Rich Jenkins of Gizmondo/GetFugu/Serge fame. see http://carlfreerscam.wordpress.com/.
Sadly, if these folks put as much effort into building a real company as they did their criminal enterprises, they might actually achieve legitimate success and not have to run from the FBI.
If you find yourself in a similar situation contact your lawyer. You, as a stockholder, can sue. The courts are the best place to adjudicate this. Conditional upon advice from the law firm contact the SEC, the state financial regulators, e.g. DFS in New York, and the state DOJs. This is not to elicit enforcement action, simply to put a time-stamp on the complaint.
>The con artist would then “help” the company execute a Reverse Merger...[then dumped his] stock prematurely or used insider information to sell off. This ultimately caused the stock to crash and the public market to be stuck with the loss. Meanwhile you, the unknowing founder, probably end up in jail.
This is not evidence of pump and dump. There was a dump which may have violated lock-up terms, fair disclosure, or insider trading rules. But I don't see a pump, just a reverse merger and liquidation by an investor. The classic pump and dump involves acquiring a position in an illiquid stock, spreading false information to get investors to bid up its price, selling out of the position at a profit, and leaving the market to figure out it overvalued the stock.
Also, you will not go to jail. You can be incredibly stupid, down to hiring a chimpanzee chairman who moonlights as a special advisor to the board to take your company public via a reverse merger (he read about it on StockTwits) who liquidates his investment on the day the lock-up ends, thereby hosing every other stockholder, and still be well within the law, which punishes fraud, not naïveté.
>Here were a few reasons why it didn't get covered: ...b) Too difficult to prove
The threshold for the Wall Street Journal, Bloomberg, et al to report purported fraud isn't astronomical. They can claim first amendment protection and like to break this kind of information for short sellers.
>The international holding company was actually an organized crime group, with offices in Barbados and the Cayman islands committing fraud in the US.
This line set off alarms because I've experienced, first hand, how difficult it is to get information about a Cayman holding company or trust in person, let alone remotely, let alone before 2008.
>In order to silence the class action lawsuit from Texas, the fraud portfolio company ultimately filed for bankruptcy and settled with the investors.
If this is true, the class action settlement is illegal - you are not allowed to take payouts from a fraudulent scheme. Further, it is unlikely that the victims of a fraud would settle via a class action lawsuit (versus privately and bilaterally), let alone settle at all. The former deputy director of the CIA could probably manage a phone call to a DOJ.
This happened. The company paid exorbitant fees for PR and news services to hype the stock with announcements that were't real in the build up period.
>This line set off alarms because I've experienced, first hand, how difficult it is to get information about a Cayman holding company or trust in person, let alone remotely, let alone before 2008.
I didn't interface with any of the Cayman organizations directly. What made it difficult? Just paper trails, continual mailed notices etc?
>If this is true, the class action settlement is illegal - you are not allowed to take payouts from a fraudulent scheme.
Not a lawyer, however the company shut down just before the SEC investigation was complete, investors settled the lawsuit before fraud was proven, and evidence dismissed before it could show up in public records…it is very possible.
As a high frequency trader I’m sure you’re very familiar and aware of how plausible and possible these things are.