WEBVTT - Episode 17: How One Analyst Uncovered a $7 Billion Fraud 0:00:06.200 --> 0:00:09.480 Welcome to Odd Lots. It's Monday, February twenty nine. I'm 0:00:09.520 --> 0:00:15.040 Tracy Allaway. Joe. I am really excited about this week's episode. 0:00:15.400 --> 0:00:19.600 It's a great story that involves a humbled billionaire, some 0:00:19.720 --> 0:00:23.160 brilliant research by an independent analyst, and a big, big 0:00:23.160 --> 0:00:26.480 win for digital journalism. And I think at least two 0:00:26.560 --> 0:00:28.560 of those things are you know, kind of close to 0:00:28.640 --> 0:00:31.680 our hearts, right, yeah, and it involves like some huge 0:00:31.840 --> 0:00:34.320 financial crime, right, So in addition to just being a 0:00:34.400 --> 0:00:39.440 humbled billionaire, there's dramatic element, right, oh for sure. But 0:00:39.680 --> 0:00:42.360 let's start with a billionaire. Back up a little bit. 0:00:42.479 --> 0:00:46.760 It's a guy called Alan Stanford. Remember, Yeah, I think 0:00:46.800 --> 0:00:49.800 a lot of people probably do. Uh. He was CEO 0:00:50.120 --> 0:00:53.520 of the Stanford Financial Group of companies, which included all 0:00:53.560 --> 0:00:57.080 sorts of things like a real estate company, investment firm, 0:00:57.120 --> 0:01:01.040 and a bank based in Antiqua, which is this tiny 0:01:01.160 --> 0:01:06.680 little island in the Caribbean. I remember Stanford. I remember 0:01:06.720 --> 0:01:08.480 he was in the news a lot around the same 0:01:08.520 --> 0:01:11.680 time as Bernie made Off. I don't remember a lot 0:01:11.680 --> 0:01:13.960 of the details, So I'm really excited about talking about 0:01:13.959 --> 0:01:16.840 this story. Yeah. I mean, if you were living in 0:01:16.880 --> 0:01:20.640 the UK, any time before two thousand nine, you would 0:01:20.680 --> 0:01:24.160 have heard of Stanford because he was this kind of eccentric, 0:01:24.280 --> 0:01:28.080 larger than life character, this fifth generation Texan, as he 0:01:28.120 --> 0:01:31.720 described himself, who decided to come in and support the 0:01:31.760 --> 0:01:35.120 sport of cricket and transform it. Right. I remember this 0:01:35.360 --> 0:01:38.800 that he became this huge backer of cricket, which seemed 0:01:38.920 --> 0:01:42.000 really weird for a Texas billionaire, and it almost seemed 0:01:42.000 --> 0:01:45.200 impossible to believe that he was in fact of Texan. Yeah. 0:01:45.319 --> 0:01:47.720 I want to kind of nail the eccentricities here because 0:01:47.960 --> 0:01:52.200 he used to helicopter into the Lord's Cricket tournament. Uh, 0:01:52.280 --> 0:01:56.280 he was caught on camera flirting with these cricketers wives. 0:01:56.960 --> 0:02:00.160 He really made a name for himself in sports and 0:02:00.320 --> 0:02:03.680 political circles as well. So I could go on and on, 0:02:03.880 --> 0:02:06.040 but why don't we just let Allen Stanford kind of 0:02:06.200 --> 0:02:10.160 speak for himself. This is an interview from CNBC with 0:02:10.320 --> 0:02:14.920 Stanford back in late two thoight. You managed to avoid 0:02:14.960 --> 0:02:19.280 the subprime debacle almost entirely, didn't you. We avoided the 0:02:19.320 --> 0:02:22.640 subprime debacle. How did you do that? What what made you? 0:02:22.680 --> 0:02:24.880 And I'm sure you had the opportunity to to race 0:02:25.280 --> 0:02:27.040 some of that risk. What told you it was not 0:02:27.080 --> 0:02:29.520 a wise move? Well, it's very simple because we never 0:02:29.600 --> 0:02:32.440 understood what the risk was. You know, securitized debt's been 0:02:32.480 --> 0:02:36.040 around for over three decades now, and when you start 0:02:36.080 --> 0:02:38.440 packaging something with a lot of assets are all mixed 0:02:38.520 --> 0:02:40.240 up and you can't get your arms around what the 0:02:40.320 --> 0:02:43.760 real asset is. Therefore, what the risk is. We decided 0:02:43.840 --> 0:02:47.839 that decided that whatever perceived profits or might be, uh, 0:02:47.880 --> 0:02:50.520 we decided not to take that risk because we didn't 0:02:50.520 --> 0:02:53.040 know what the risk really was and to perceived profits 0:02:53.040 --> 0:02:55.720 really became irrelevant. Kind of makes you wonder whether or 0:02:55.720 --> 0:02:58.000 not at the banks or what they were thinking. I 0:02:58.000 --> 0:02:59.760 think we're going to see a lot of problems surfaced 0:02:59.800 --> 0:03:01.960 in the first QUARTERBLL nine before we let you go. 0:03:02.840 --> 0:03:08.840 Is it fun being a billionaire? Well, yes, yes, yes, 0:03:08.880 --> 0:03:10.720 I have to say it is fun being a billionaire. 0:03:10.760 --> 0:03:16.639 But haware hardware. Uh, that was great. I love the 0:03:16.680 --> 0:03:19.240 idea that he said it was great to be a billionaire, 0:03:19.440 --> 0:03:22.720 because so many people will say otherwise though they'll say 0:03:22.720 --> 0:03:25.680 something humble, or they'll say something about how it lets 0:03:25.720 --> 0:03:28.720 them do good for the world or philanthropy, and he 0:03:28.840 --> 0:03:30.760 just straight up talked about how great it was to 0:03:30.760 --> 0:03:36.880 be rich. That's right, sir, Allen's down flags there or anything. No, Uh, indeed, 0:03:37.840 --> 0:03:39.920 And I loved also that he said he thought there 0:03:39.920 --> 0:03:41.960 were going to be a lot of problems for banks 0:03:42.040 --> 0:03:45.040 in early two thousand nine, because, as it turned out, 0:03:45.440 --> 0:03:48.720 that was the time when his own bank, Stanford International, 0:03:48.920 --> 0:03:52.560 came under a lot of scrutiny. Well, at least she 0:03:52.640 --> 0:03:55.840 was right about banks in general. Okay, that's one way 0:03:55.840 --> 0:03:57.560 of putting it, all right, But think back to the 0:03:57.560 --> 0:04:01.400 headlines in two thousand nine. Suddenly Alan Stanford is accused 0:04:01.480 --> 0:04:06.560 of a seven billion dollar Ponzi scheme and this widespread, 0:04:06.720 --> 0:04:09.960 on growing fraud. So how did he defend himself when 0:04:10.680 --> 0:04:13.640 we first started hearing about these allegations. All right, we 0:04:13.640 --> 0:04:17.360 have another clip. Let's fast forward to two thousand This 0:04:17.400 --> 0:04:20.760 was not a Ponzi scheme. Never in my life have 0:04:20.880 --> 0:04:24.560 I ever set out to defraud a person. Never. Never 0:04:24.640 --> 0:04:27.159 have we done anything that I'm not proud of. Never 0:04:27.200 --> 0:04:30.200 have we done anything, to the best of my knowledge, 0:04:31.320 --> 0:04:35.200 that was illegal or wrong. And if there are things 0:04:35.279 --> 0:04:42.760 that were done that outside of of my direct control, uh, 0:04:45.520 --> 0:04:49.200 you know, I don't know what to say. Uh. He 0:04:49.320 --> 0:04:51.800 found it a bit different there than his clip from 0:04:51.839 --> 0:04:54.760 the end of two. Yeah, the tone is slightly different, right, 0:04:56.160 --> 0:04:59.479 all right, So when we started I mentioned that, in 0:04:59.520 --> 0:05:01.919 addition to to the Humboldt billionaire, part of the story 0:05:02.000 --> 0:05:06.359 was independent analysis and digital journalism. Uh. That's because the 0:05:06.440 --> 0:05:11.479 investigation around Alan Stanford and his eventual conviction for fraud 0:05:11.960 --> 0:05:15.880 was sparked by one research note, a single research note 0:05:15.880 --> 0:05:19.480 that was written by this guy down in Florida and 0:05:19.560 --> 0:05:23.520 subsequently picked up by financial blogs around the world. Right, 0:05:23.600 --> 0:05:26.880 remember when made Off collapsed, it turned out that there 0:05:26.880 --> 0:05:29.760 had been a whistleblower who had written a note about him, 0:05:29.880 --> 0:05:31.920 but no one picked it up. It was not public, 0:05:31.960 --> 0:05:34.799 no one saw it, it it was ignored. This was different 0:05:34.880 --> 0:05:38.680 because someone actually did write a public note and say, hey, 0:05:38.720 --> 0:05:41.440 there's something going on here. Yes, he did, and his 0:05:41.560 --> 0:05:43.960 name is Alex del Maudi. We're going to have him 0:05:43.960 --> 0:05:46.200 on the show today to talk about the research note 0:05:46.240 --> 0:05:49.560 and how it came to be and what happened afterwards. 0:05:50.000 --> 0:05:52.480 And I'm really excited about talking about this now because 0:05:52.760 --> 0:05:56.440 you know, it's not a coincidence that made Off and 0:05:56.600 --> 0:06:00.599 Stanford were both discovered during the collapse pups of two 0:06:00.600 --> 0:06:03.640 thousand and eight. Two thousand nine, because it's only when 0:06:03.720 --> 0:06:08.080 the tide is receding people are losing money, that these 0:06:08.160 --> 0:06:10.359 frauds can no longer go on. And so we're in 0:06:10.400 --> 0:06:13.320 another period of volatility. And I'm not saying we're going 0:06:13.360 --> 0:06:17.280 to see another made Off, but the business models that 0:06:17.920 --> 0:06:21.440 thrived during the boom years and the shady companies, many 0:06:21.480 --> 0:06:25.000 of them are likely to be exposed in a market downturn. Yeah, 0:06:25.080 --> 0:06:28.240 I think that's exactly right. There's that famous Warren Buffett 0:06:28.279 --> 0:06:30.240 quote about the tide going out, right, we get to 0:06:30.240 --> 0:06:33.400 see everyone who's been swimming naked, guys like made Off 0:06:33.480 --> 0:06:37.400 and Stanford. It turns out we're definitely in the nude. 0:06:37.640 --> 0:06:40.400 And of course you're fond of a gall braves idea 0:06:40.480 --> 0:06:42.920 of the bezel and what and what what we learned 0:06:42.920 --> 0:06:45.560 about that during a downturn? All right, let's bring on 0:06:52.720 --> 0:06:56.080 Alex del MONTI. Welcome to the show the Hi, how 0:06:56.120 --> 0:06:59.440 you doing good? Thanks? Thanks for joining us. It's my pleasure. 0:06:59.800 --> 0:07:03.160 All right, So tell us what you were doing back 0:07:03.200 --> 0:07:05.400 in sort of early two thousand nine. Who are you 0:07:05.520 --> 0:07:09.760 and what was keeping you busy back then? Okay, well, 0:07:09.800 --> 0:07:12.640 actually the story starts a little bit earlier in two 0:07:12.720 --> 0:07:17.760 thousand and eight when I was just UM doing my saying, 0:07:17.840 --> 0:07:22.520 which is UM an investment advisor. So I was looking 0:07:22.560 --> 0:07:26.400 at the chaos in the markets, and a friend called 0:07:26.480 --> 0:07:32.560 me and asked me to do some due diligence on 0:07:33.080 --> 0:07:37.400 UM Stanford and National Bank, where he had a substantial 0:07:37.440 --> 0:07:42.640 part of the message. So why did that? And then 0:07:42.840 --> 0:07:46.280 going over the numbers and the notes was financial statements. 0:07:46.360 --> 0:07:49.760 I it pretty much became clear to me that they 0:07:49.760 --> 0:07:52.720 couldn't be true, that what they were reporting just was 0:07:52.760 --> 0:07:55.560 a lie. There was no way that they could be 0:07:56.680 --> 0:07:59.160 reporting the kind of performance they were reporting because it 0:07:59.200 --> 0:08:02.480 was to the bank and instead of giving out loans, 0:08:02.600 --> 0:08:07.000 it was playing the stock market, financial markets, and the 0:08:07.120 --> 0:08:11.240 supposedly making very consistent and high returns every single year, 0:08:11.400 --> 0:08:15.120 something that if you're an investment of vising, you know 0:08:15.240 --> 0:08:18.640 it's very, very very hard to do. So you looked 0:08:18.640 --> 0:08:22.040 at this bank, your friend brought you this bank. He 0:08:22.120 --> 0:08:25.600 had put his money into a CD essentially that offered 0:08:25.640 --> 0:08:28.600 this eye popping return. No, not even that eye popping. 0:08:28.640 --> 0:08:30.920 I think he was at the time he was maybe 0:08:31.080 --> 0:08:34.240 five percent maybe on on the c ds. Which do 0:08:34.320 --> 0:08:37.400 you go back to them that that's maybe a couple 0:08:37.440 --> 0:08:39.280 of points over what you would get on a yeah, 0:08:39.280 --> 0:08:43.079 I guess, I guess. Now in five seems like an 0:08:43.080 --> 0:08:47.040 eye popping return, but wasn't that big. So tell us 0:08:47.080 --> 0:08:50.360 what you saw. You're looking at Stanford's numbers as a 0:08:50.400 --> 0:08:53.520 favor to your friend. Essentially, what were the big warning 0:08:53.640 --> 0:08:57.080 signs that you picked out? Well, the biggest warning sign 0:08:57.200 --> 0:09:01.160 was the business model itself, which was they state, we 0:09:01.400 --> 0:09:05.400 do not uh, we don't. We don't give loans. We 0:09:05.440 --> 0:09:10.959 invest in stocks, bonds, hedge funds, and you know, sold 0:09:11.040 --> 0:09:14.480 or whatever. So let's just saying they have an investment portfolio, 0:09:15.000 --> 0:09:19.800 which is fine if you have you know, a low cost, 0:09:20.120 --> 0:09:23.959 very low cost of funds. You know, you can't as 0:09:24.000 --> 0:09:27.200 a bank, you can't invest in the UH in something 0:09:27.240 --> 0:09:31.200 as volatile as as markets like these, and at the 0:09:31.240 --> 0:09:36.480 same time expect to be able to return stable amounts 0:09:36.520 --> 0:09:40.040 to your depositors. It's it was just an impossible business 0:09:40.040 --> 0:09:42.520 model because you can't expect to make the kind of 0:09:42.559 --> 0:09:46.280 returns that they needed to make to pay their expenses 0:09:46.280 --> 0:09:51.880 and their depositors every year forever calculating that it came 0:09:51.880 --> 0:09:55.120 out to like what they had to make great keep 0:09:55.160 --> 0:09:59.320 it and they were claimed given in two thousand eight, 0:09:59.640 --> 0:10:02.640 they aim to have made a profit even in a 0:10:02.720 --> 0:10:05.880 year in which literally nobody who was long stocks and 0:10:06.000 --> 0:10:09.400 long private equity or long gold was making anything. Right, 0:10:09.440 --> 0:10:12.679 they were claiming to. At that point we had half 0:10:12.760 --> 0:10:15.800 year results and they were still claiming to make money. 0:10:16.360 --> 0:10:18.360 And I went back over the results and things. If 0:10:18.360 --> 0:10:21.480 they were claiming they were making thirteen four every year, 0:10:22.080 --> 0:10:26.600 So no, it's just not possible. So I just wanted 0:10:26.679 --> 0:10:28.600 before we move on, I just wanted to sort of 0:10:28.640 --> 0:10:31.400 get the summary ride for listeners. So, like a typical bank, 0:10:31.880 --> 0:10:34.480 you put in a deposit, if it was a CD, 0:10:34.600 --> 0:10:37.880 you'd get some tiny return, and the bank would then 0:10:37.960 --> 0:10:41.880 generate a profit via a typical loan portfolio. On the 0:10:41.880 --> 0:10:44.640 flip side, you have investment institutions that will invest your 0:10:44.679 --> 0:10:48.160 money in risky things like stocks and private equity, but 0:10:48.280 --> 0:10:52.360 those don't ever or typically pay a high fixed return, 0:10:52.480 --> 0:10:55.240 so the investor could lose money. In this case, it 0:10:55.360 --> 0:10:59.120 was this combination of both the promise, security and safety 0:10:59.120 --> 0:11:03.080 of a bank with the returns of an investment company. 0:11:03.120 --> 0:11:05.840 And that's what you found implausible exactly. You said it 0:11:05.840 --> 0:11:08.640 a lot better than I could have, So um, the 0:11:08.679 --> 0:11:13.839 investor of money supposedly not is not at risk, and 0:11:13.640 --> 0:11:17.079 and so the whole risk has been transferred to to 0:11:18.000 --> 0:11:21.880 the bank exexuty and it's leveraged pretty much hy one. 0:11:22.559 --> 0:11:24.240 And the other thing is the cost of funds is 0:11:24.360 --> 0:11:28.760 ridiculously high because not so much because the CDs rates 0:11:28.760 --> 0:11:31.240 were that high, is because they didn't have any other 0:11:31.360 --> 0:11:36.160 sort of deposit. There was no you know, UM demand 0:11:36.200 --> 0:11:40.480 accounts or demand deposits, checking accounts or anything any of that. 0:11:40.600 --> 0:11:45.560 It was it was basically all CDs. So if all 0:11:45.640 --> 0:11:51.679 your funding is is accruing interest, it just makes your 0:11:51.880 --> 0:11:55.120 your costs not much higher. So that was basically the 0:11:55.720 --> 0:12:00.000 whole thing. The business model itself was impossible and there 0:12:00.000 --> 0:12:03.400 for the numbers themselves couldn't be true. There were some 0:12:03.440 --> 0:12:05.880 other red flags though as well. Right, you have this 0:12:06.000 --> 0:12:11.240 bank based in Antiqua, which isn't necessarily well known UM 0:12:11.520 --> 0:12:18.320 capital of governance. It's not Switzerland. Right. You also had 0:12:18.360 --> 0:12:23.720 the fact that Stamford was using this totally unknown auditor 0:12:24.360 --> 0:12:27.679 which seemed to be run by a single guy. Like 0:12:27.720 --> 0:12:30.800 I said, it was the small auditing firm. He had 0:12:30.840 --> 0:12:34.400 been auditing forever. They had never changed auditors. That was 0:12:34.440 --> 0:12:38.959 another red flag. And then you had. There was a 0:12:39.000 --> 0:12:41.480 number of things, just just the language of the of 0:12:41.520 --> 0:12:44.560 the statements was not typical of what you will find 0:12:44.559 --> 0:12:54.680 in an audited statement. It made subjective um qualifications, like, 0:12:55.040 --> 0:12:59.560 for example, just as an example, it said that the 0:12:59.559 --> 0:13:03.200 bank had a balanced portfolio. That's something that no auditor 0:13:03.400 --> 0:13:06.680 will ever find off. The numbers didn't make it. The 0:13:06.760 --> 0:13:10.600 language wasn't right. So I just told my my friend, 0:13:10.640 --> 0:13:12.839 you know what, get out as soon as you can. 0:13:13.480 --> 0:13:16.880 When did you actually make the decision to synthesize all 0:13:16.920 --> 0:13:23.200 of these points into a public analysis? Yeah, now this 0:13:23.320 --> 0:13:26.720 is something I haven't I told a lot of people before. Afterwards. 0:13:26.720 --> 0:13:31.080 What happened is in December um of two thousand eight, 0:13:31.800 --> 0:13:35.640 the made Off scandals came out. I'm sitting there and 0:13:35.720 --> 0:13:39.320 I'm we're looking at I'm looking at the TV and 0:13:39.320 --> 0:13:43.120 and and my friend again he calls me and it 0:13:43.160 --> 0:13:47.360 turns out that not only was invested in Stanford, he 0:13:47.400 --> 0:13:55.360 had invested in made Off. So that was quite unfortunately 0:13:55.360 --> 0:13:57.800 not a large amount because he kind of lost that 0:13:58.640 --> 0:14:02.360 just totally just just put me off the rails. And 0:14:02.400 --> 0:14:04.679 I told him, you know what, I'm going to write 0:14:04.720 --> 0:14:08.720 something about about Stanford. We're gonna we're gonna blow that open. 0:14:08.960 --> 0:14:12.439 And so he had already gotten his money out. He said, well, 0:14:12.440 --> 0:14:15.600 go ahead, you know, nail him. So this decision of 0:14:15.640 --> 0:14:19.080 yours to go public with your findings, you wrote a note. 0:14:19.320 --> 0:14:22.640 It was called duck tails, the reference being if it 0:14:23.000 --> 0:14:25.160 walks like a duck and quacks like a duck, it 0:14:25.280 --> 0:14:27.960 is a duck. If it looks acts like a ponzi, 0:14:28.080 --> 0:14:31.240 it is a Ponzi. There's an important parallel with made Off, 0:14:31.280 --> 0:14:36.760 which is that there was a whistleblower, Harry Marcopolis, who 0:14:36.760 --> 0:14:39.440 had tried to warn the world about made Off a 0:14:39.520 --> 0:14:42.200 long time earlier, but he never really went public with 0:14:42.280 --> 0:14:45.120 his findings. Wasn't something that journalists could have picked up on. 0:14:45.560 --> 0:14:49.240 Regulators ignored him. So when you decided to go public, 0:14:49.640 --> 0:14:53.240 people actually discovered it. You did it in a way 0:14:53.280 --> 0:14:57.400 that allowed people to actually find and promote your work. 0:14:57.480 --> 0:15:01.840 So tell us about exactly where you published the material 0:15:01.920 --> 0:15:05.200 and then how you got the attention for it. Yeah. 0:15:05.400 --> 0:15:08.720 Initially I was going to publish it in a in 0:15:08.760 --> 0:15:13.600 a Venezuelan newspaper, but the end they turned me down, 0:15:14.600 --> 0:15:19.280 So I went to uh Venezuela economic review newspaper. Alex 0:15:19.320 --> 0:15:22.680 I was going to ask were you scared publishing this 0:15:22.880 --> 0:15:25.560 because you know, let me set the scene. We're talking 0:15:25.560 --> 0:15:29.200 about this larger than life character. He's kind of famous 0:15:29.240 --> 0:15:31.640 for giving lots of money to sporting events. He has 0:15:31.680 --> 0:15:35.240 a knighthood from Antiqua. He's donated millions of dollars to 0:15:35.360 --> 0:15:38.640 US politicians. You must have been a little nervous, right, 0:15:38.880 --> 0:15:41.880 I was terrified. I thought I was gonna be sued, 0:15:42.680 --> 0:15:45.480 and I thought, my my, especially the editor, and I 0:15:45.560 --> 0:15:49.440 were going to be get our pants suit off. On 0:15:49.480 --> 0:15:55.160 the other hand, I figured, well, it's pretty much certain 0:15:55.200 --> 0:15:58.800 that this is this a fraud, So if they come 0:15:58.800 --> 0:16:01.800 out and sue, you know, that was just make the 0:16:01.800 --> 0:16:04.680 whole thing much more public. So even though there was 0:16:04.760 --> 0:16:08.080 the obvious fear of calling this large organization and rich 0:16:08.120 --> 0:16:10.720 guy a fraud star, because you were just so rock 0:16:10.840 --> 0:16:15.000 solid in your analysis, you ultimately determined you just had 0:16:15.040 --> 0:16:19.520 nothing to red it was. I was per cent sure 0:16:19.640 --> 0:16:23.200 because for their numbers to be correct, he had to 0:16:23.280 --> 0:16:27.280 be the outlier of the outliers. You published this note 0:16:28.040 --> 0:16:31.840 and it gets picked up by initially I think all 0:16:31.880 --> 0:16:36.440 these sort of financial bloggers, right yes, and the Financial 0:16:36.480 --> 0:16:38.840 Times picked it up picked it up pretty early too, 0:16:39.440 --> 0:16:42.840 and that was that was a big things. Mostly it 0:16:42.880 --> 0:16:46.400 was the bloggers who picked it up and put it 0:16:46.800 --> 0:16:51.480 in the cyber domains, you know, because I had published 0:16:51.480 --> 0:16:56.080 on paper initially, so once it got into the internet, 0:16:56.200 --> 0:16:58.760 they would seeing that happened. Although there was lots of 0:16:58.800 --> 0:17:01.360 people looking at him at Standford the same way I 0:17:01.400 --> 0:17:05.919 had been looking at Matthew Goldstein from Business Week was 0:17:06.080 --> 0:17:07.960 had been preparing an article. He was one of the 0:17:08.000 --> 0:17:11.000 first to call me, and the folks at Bloomberg were 0:17:11.119 --> 0:17:14.800 also onto the stories, and and once once it started 0:17:14.840 --> 0:17:19.760 going through getting into the more mainstream blogs and and 0:17:19.760 --> 0:17:24.919 and articles, then it just is it is bloaded. My 0:17:24.920 --> 0:17:28.679 My article went out at the end of January, and 0:17:28.760 --> 0:17:33.440 two weeks later the offense were raiding the Houston offices 0:17:34.200 --> 0:17:38.040 and shutting them down. So, Alex, when I listened to 0:17:38.080 --> 0:17:41.200 the story, the overwriting question I have on my mind 0:17:41.480 --> 0:17:45.600 is how did regulators miss this guy? You know, you 0:17:45.640 --> 0:17:49.520 took a look at the financial numbers and with certainty 0:17:49.640 --> 0:17:52.000 said this was a ponzi. How come no one else 0:17:52.080 --> 0:17:57.000 get the same? Well, the thumb is with regulators is 0:17:57.000 --> 0:18:02.399 that high probability isn't any good is improved for them 0:18:02.400 --> 0:18:07.800 because they are more than than accountant or financial and 0:18:07.920 --> 0:18:12.080 us their lawyers. So what they need is a smoking gun. 0:18:12.480 --> 0:18:16.360 They want somebody, an insider, to tell them that's palsy. 0:18:16.520 --> 0:18:20.280 They want a customer to complain that it's a posy. 0:18:20.520 --> 0:18:25.320 You know, they want something more than high probability of 0:18:25.320 --> 0:18:30.080 of its not being as it's told. You can't really 0:18:31.359 --> 0:18:37.520 act on it's probable. I understand. I understand their position, 0:18:37.920 --> 0:18:43.600 not totally, I mean, but to a point. Because your 0:18:43.800 --> 0:18:49.080 your regulators, they're they're bound by certain there's certain things 0:18:49.119 --> 0:18:51.879 that that the company has to produce. They have to 0:18:51.880 --> 0:18:56.560 produce uh financial statements after this that. But and if 0:18:56.600 --> 0:18:59.320 you check those all off the list, well they're good. 0:19:00.680 --> 0:19:04.800 So Alex, what are you doing nowadays? I'm doing the 0:19:04.840 --> 0:19:07.280 same thing I've always been doing. I'm I'm I'm an 0:19:07.280 --> 0:19:11.800 investment advisor. I'm a financial analyst. People ask what to 0:19:11.800 --> 0:19:15.040 do with their money, and I'll give my ideas, and 0:19:15.960 --> 0:19:18.159 do you keep an eye out for the next like 0:19:18.240 --> 0:19:20.600 do you know for the next one? Like do you 0:19:20.640 --> 0:19:25.399 sort of probe? And I don't. But somehow some of 0:19:25.440 --> 0:19:28.159 these things actually seemed to find me. No. I was 0:19:29.600 --> 0:19:34.720 a couple of years back, I actually found um but 0:19:34.840 --> 0:19:39.240 there was a case called Final Forest. Oh yeah, yeah, 0:19:39.320 --> 0:19:41.960 I found myself on the other side of that, had 0:19:42.000 --> 0:19:48.600 some some clients invested had bonds of this company. And unfortunately, 0:19:48.640 --> 0:19:52.480 of course, since I had been in in the whistleblower shoes, 0:19:52.600 --> 0:19:54.840 you know, I got out quickly. Joe and I were 0:19:54.840 --> 0:19:59.280 talking earlier about the idea that when the easy money 0:19:59.440 --> 0:20:01.240 kind of dry, it is up, and when bowl markets 0:20:01.280 --> 0:20:04.080 come to an end, a lot of these ponds e's emerge. 0:20:04.520 --> 0:20:06.960 We've seen a lot of market volatility recently. Do you 0:20:07.000 --> 0:20:09.960 think we're in a sort of same time period now? 0:20:10.000 --> 0:20:12.119 Could we see some of these things come out of 0:20:12.119 --> 0:20:18.600 the woodwork? Oh? Very possibly. But but then again I 0:20:18.640 --> 0:20:22.560 think regulators are have tightened up a bit too also, 0:20:22.680 --> 0:20:26.800 so so the easy ponzis were also discovered back in 0:20:27.520 --> 0:20:29.480 two thousand and eight and two thousand nine and two 0:20:29.520 --> 0:20:34.040 thousand ten. You see the activity in that sense. I 0:20:34.080 --> 0:20:40.240 think it's bogged down a bit hopefully as uh. But 0:20:40.280 --> 0:20:42.520 there's a lot of things that that that were and 0:20:42.880 --> 0:20:47.399 could continue to be um problematic. I mean, you hedge 0:20:47.400 --> 0:20:53.000 funds are just not transparent enough and and and they're 0:20:53.040 --> 0:20:57.760 prone to being fraudulent, and you know, and then you 0:20:57.840 --> 0:21:03.960 have all these if you went off the market products, 0:21:04.040 --> 0:21:09.400 you know, the unlisted and unregulated reads and things like that, 0:21:09.480 --> 0:21:13.919 but you're never sure. So do you have real quick 0:21:14.160 --> 0:21:18.040 one or two rules that everybody should abide by if 0:21:18.040 --> 0:21:25.760 they want to avoid getting scammed? I'd say, you know, 0:21:25.920 --> 0:21:29.480 the best thing is to try to find find to understand, 0:21:30.600 --> 0:21:37.119 um the motivations and the and and the why somebody 0:21:37.200 --> 0:21:40.800 is selling this to you. You know, if it's so good, 0:21:41.240 --> 0:21:45.240 you know, why, why isn't this person? Why is it? 0:21:45.320 --> 0:21:47.800 Why are they selling what are they offering it to meet? 0:21:48.200 --> 0:21:51.160 Why am I suspect that they're offering this this huge 0:21:51.200 --> 0:21:54.240 opportunity to me? So that's that's one thing I would 0:21:54.280 --> 0:21:57.200 look out for. And the other thing is if you can, 0:21:57.480 --> 0:22:02.240 if you really know somebody who is who can look 0:22:02.280 --> 0:22:04.840 at it for you and it doesn't have a vested 0:22:04.880 --> 0:22:08.480 interest in it, it's good to get them to look 0:22:08.520 --> 0:22:11.320 at it. Just like my friend did you know he 0:22:11.320 --> 0:22:13.359 he called me out of the blue after someone for 0:22:13.760 --> 0:22:17.400 I don't I haven't seen him for years, and and 0:22:17.400 --> 0:22:20.960 and that turned out really well for him, and it 0:22:21.040 --> 0:22:24.920 turned out well for me too. I mean, it was 0:22:24.960 --> 0:22:29.400 an interesting part of my life, I guess interesting indeed, Alex, 0:22:29.560 --> 0:22:31.359 thank you so much for your time. Thank you. That 0:22:31.440 --> 0:22:39.479 was great. There's so many good things about that story. 0:22:40.320 --> 0:22:42.479 And I think for both of us, a story like 0:22:42.560 --> 0:22:46.280 this has a special place in our hearts for multiple reasons. One, 0:22:46.400 --> 0:22:49.440 both of us were very active in digital media during 0:22:49.440 --> 0:22:53.040 the crisis. We both covered this story. Uh it's a 0:22:53.040 --> 0:22:55.879 little guy versus a big guys story. It's just it 0:22:55.960 --> 0:22:58.760 has everything. Yeah, And I feel like I should mention 0:22:58.840 --> 0:23:01.879 that Alex is actually ending a book on this very topic, 0:23:02.200 --> 0:23:04.240 so it should be out this year. It's going to 0:23:04.320 --> 0:23:06.800 be called If It Walks Like a Duck. And if 0:23:06.800 --> 0:23:09.920 you want to hear more about this kind of crazy tail, 0:23:09.960 --> 0:23:11.800 you should definitely pick it up. One thing that I 0:23:11.880 --> 0:23:13.679 just want to go back to, and you hit on 0:23:13.720 --> 0:23:16.439 this because it is kind of the craziest thing. It's 0:23:16.480 --> 0:23:19.879 just the guts that it takes to publish something like this, 0:23:20.320 --> 0:23:23.960 even if you're totally sure this is a big financial institution, 0:23:24.040 --> 0:23:27.320 this is a billionaire. And there was no equivocating in 0:23:27.440 --> 0:23:30.280 his original essay on it. It wasn't like I have 0:23:30.400 --> 0:23:33.919 concerns and said this is a fraud. And I just 0:23:34.000 --> 0:23:38.400 find that to be extraordinarily brave to do even with 0:23:38.440 --> 0:23:41.200 all the evidence on your side. I think that's absolutely right, 0:23:41.240 --> 0:23:44.639 and if anything, it really demonstrates the importance of independent 0:23:44.800 --> 0:23:48.040 financial analysis. And also and that the reason, you know, 0:23:48.160 --> 0:23:52.280 his explanation for why regulators aren't equipped to catch these things, 0:23:52.560 --> 0:23:54.800 they're not really so much looking at the financial stuff, 0:23:54.840 --> 0:23:57.280 they're more wanting tips and stuff like that is also 0:23:57.640 --> 0:24:00.879 another fascinating angle. And I actually, yeah, he gave me 0:24:00.880 --> 0:24:03.520 a little more sympathy for the people who missed these frauds. 0:24:03.560 --> 0:24:05.320 Do you think so? I'm a little bit. I'm kind 0:24:05.359 --> 0:24:07.359 of more angry about it because here I see this 0:24:07.400 --> 0:24:12.199 little guy who certain just by looking at numbers and 0:24:12.240 --> 0:24:15.000 coming up with his own thought process, and then you 0:24:15.000 --> 0:24:18.240 have regulators whose job is to do the same thing, 0:24:18.640 --> 0:24:22.920 and they won't act without a certainty. Yeah, no, that's true. 0:24:22.960 --> 0:24:26.080 I guess I'm just thinking in terms of filtering out. 0:24:26.119 --> 0:24:28.280 You know, you look at you try to you see 0:24:28.280 --> 0:24:31.000 these financial institutions, and I could see how you end 0:24:31.040 --> 0:24:33.320 up just checking off the box like they filed this, 0:24:33.520 --> 0:24:36.440 They had this auditor do this and say okay um, 0:24:36.560 --> 0:24:39.880 And so look at how regulators might go about trying 0:24:39.920 --> 0:24:43.280 to find these frauds. It sounds like there's structural things 0:24:43.280 --> 0:24:45.719 that might need to be changed with that. All right, 0:24:45.840 --> 0:24:48.520 we're gonna leave it there for this week. I'm Tracy Alloway. 0:24:48.680 --> 0:24:51.760 You can follow me on Twitter at Tracy Alloy. And 0:24:51.800 --> 0:24:54.439 I'm Joe Wisenthal. You can follow me on Twitter at 0:24:54.480 --> 0:25:03.800