Asset Protection and Investing - If It Sounds Too Good To Be True, It Probably Is.
I read a story in the local paper last week with the headline “Man who sold investors on deal ‘too good to be true’ goes to prison.” The story relayed the sad tale of those who invested with John Clark. According to the Herald Journal the complaint filed by the Securities and Exchange Commission stated: “Clark told investors that he and his business partner were members of a top secret U.S. military and government program and held special security clearances which enabled them to invest in the purchase and sale of Iraqi dinar and oil contracts . . .” Investors were allegedly promised that within 90 days an investment of $1,000.00 would guarantee a return of $125,000.00 and an investment of $20,000.00 would guarantee a return of $3 million. When the promised returns failed to materialize, Clark apparently told the investors that President Obama had signed an executive order stopping the payout. Clark was allegedly able to convince 46 people to pay him nearly $2 million, several of whom he had apparently scammed in prior to the Ponzi scheme which resulted in a conviction.That story came on the heels of a story I read about a Salt Lake City man who lost an appeal to overturn a conviction for bilking investors in a fraudulent wind farm scandal. According to the court records, investors across the country allegedly lost $4.4 million in what they were told were wind farm projects in Wyoming and South Dakota. The defendant and others allegedly acquired land in Wyoming and South Dakota, hired a contractor to push some dirt around and then took pictures to make it appear that construction of the wind farm was progressing.These are just a couple of what seems to be an ever increasing number of stories I read almost daily about individuals who are scammed out of significant sums of money by “too good to be true” investment opportunities. It seems that a week does not go by that I don’t hear a story from a Client relaying how they were scammed out of some amount of money. Many of these stories involve affinity fraud. The SEC describes affinity fraud as: “investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are - or pretend to be - members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile.”People that visit me are always concerned about asset protection. When we are engaged in asset protection planning, there are many different strategies that can be employed to protect assets from claims of creditors. It may be business entities (LLCs, corporations, limited partnerships), insurance, exempt property, and in some cases asset protection trusts. But for many, the biggest risk of actually losing money comes from bad investment decisions. I had a history teacher in high school who liked to use the acronym TANSTAFL. It stands for, “There ain’t no such thing as a free lunch.” He used it to convey the idea that it is impossible to get something for nothing. The adage holds true when you are thinking about investing your money with someone.The SEC offers some detailed advice on what you can do to avoid investment fraud. Remember TANSTAFL. There ain’t no such thing as a free lunch – in other words, if it sounds too good to be true it probably is. So while taking other steps to protect your assets, make sure you are making sound decisions about where and with whom you invest.