Yet More "Financial Advice"

I have written previously about "financial advisors" who are actually the worst sort of pitch men out for nothing more than emptying your pockets to line their own.  Lately I've been tracking yet another one:  Mikkel Thorup and his minions at ExpatMoney.

This outfit raises every red flag possible.  No one has a license to provide investment advice, which is unsurprising given Thorup is a Randonazi libertardian who claims Adam Smith was opposed to all government regulation, ignoring Smith's clear statement that, if government did not stop the natural, bad acts of entrepreneurs, capitalism would collapse.  So either he's never read Smith, or he's read him well enough to lie as facilely about him as the Cato Institute, the AEI, the Universities of Stanford and Chicago, the von Mises Institute, etc.  No license means they can't give actual financial advice, they can only sell stuff, typically the worst sort of barn stuff (BS).  They also engage in circular promotion.  This week they appear on a friend's podcast where their friend declares them the greatest thing ever, and they make a sales pitch for some raging pantsload of an "investment".  Next week their friend appears on their podcast where they call their friend the greatest thing ever, and their friend makes a sales pitch for some raging pantsload of an "investment".  And the spin keeps spinning.

Specifics?  The major investments they're shilling are 1) real estate developments in Ambergris Cay in Belize, and 2) teak in Belize.  They also have a couple other pieces of "advice" I'll get to.  I'll get to Ambergris Cay in a bit too.  First, teak.  I will grant you, teak is a valuable wood.  So long as squillionaires keep ordering yachts, there will be demand for teak.  And it's really nice to work with.  But none of their pitches for investments in teak plantations in Belize disclose that a commercial crop requires at least 20 years from planting to logging.  That means you need at least 20 years of political and economic stability in the country where your plantation is.  Belize has had at least five bond defaults or restructurings in the last 15 years.  The most recent was last year, which was so bad Belize engaged in open extortion, threatening to stop all environmental protection, especially of its coral reefs, unless it could renegotiate its foreign debt.  The debt was rewritten last September, underwritten by, get this, the Nature Conservancy, and the bond holders still took a 60% haircut.  Reeks of stability, no?

Ambergris Cay.  Oh man.  About 20 years ago the usual sorts started promoting a luxe development on the coast of Belize.  Funds were raised funds went down a rat hole, and about 15 years ago it all collapsed.  You can read the details in a lawsuit a guy named Haugen brought against the principal finance company, Caye International Bank, Ltd. (CIB).  Haugen invested in Ambergris and thought CIB had ripped him off.  That's probably true, although I can't sympathize much with Haugen, who probably thought he'd found a way to rip a bunch of people off and ended up being the rippee instead of the ripper.  Unfortunately for Haugen, the investment disclosure laws throughout the libertardian paradise that is the Caribbean are nonexistent.  Caveat emptor, baby.  The history of the case would be a great law review article since the Caribbean Court of Appeal (aka Caribbean Court of Justice or CCJ) dumped the Belize trial court's opinion and came out in favor of CIB in a demonstration of pretzel logic worthy of Injustice Alito.  The presiding justice was Justice Wit.  You can't make this stuff up.  It's further evidence you should never expect an honest court ruling in the Caribbean (and you may largely thank the ever-corrupt UK crown for that).

Oh, and the main hawnyawk for CIB was a guy named John Nagel, who was also sued.  Aside from misrepresenting on his website that he'd been completely cleared (No, CCJ remanded to the Belize trial court for a determination of damages and costs.), he was Belize's ambassador to Austria during all this.  That is until 2017 when Austria kicked him out for doing damn all in the way of ambassadorial duties and spending all his time on private deals.  So apparently he was too much of a libertardian even for the land of von Mises and Hayek.

The point?  ExpatMoney is promoting a revival of the Ambergris Cay development.  And who's banking it?  Yep, CIB.  Anybody disclosing the prior collapse, or the lawsuits, or Nagel's issues?  Are you kidding me?  If anyone wants you to invest in this, take your money and run before they do.

And then there's their other "advice".  First, you need to run off to someplace like Belize or Panama.  Because they won't "regulate you to death".  Which is code for "you can exploit the living Hell out of them".  You can bring nothing, soak up resources while paying no taxes, and ultimately contribute nothing.  In other words, you can impose neocolonialism.  Ayn Rand wonderland.

And then there's the unregulated paradise they're promoting: The Free Republic of Liberland.  They're trying to convince you to get your second citizenship from there, touting it as a bastion of freedom.  The problem is, it doesn't exist.  It's a scam by the Czech crypto-fascist Vít Jedlička, who grabbed a slice of vacant land in one of the areas in dispute between Croatia and Serbia and called it his own.  No place recognizes Liberland or its "citizens".  But if you want to blow your money on, that's your call.

One other thing.  ExpatMoney is based in Panama.  Which means if you make the mistake of taking their "advice" and lose your shirt and your shorts, which you will, don't expect to be recover your losses.  Panama has a paucity of those pesky regulation things for you to recover under.  You'll just be another sap who broke on a Caribbean rock.

Another Post For Idiots To Ignore

As I have noted elsewhere (and many other elsewheres too), I started blowing the whistle on the real estate bubble in December 2005.  The market was too hot, there was obvious fraud, mortgage rates were going up, etc.  I didn't know when the bubble would pop because I had not yet identified the forces driving it, but I figured it had to be soon, say in the next year or so.  Frankly it should have, and I guess I'll relate that tale whilst I am at it.

Thanksgiving 2006 Wells Fargo and JP Morgan Chase froze a pile of business lines of credit and converted them to straight loans with 60-month amortizations.  When I contacted Chase, not one but two EVP/AGCs informed me Chase had done this pursuant to a clause in the LOC agreement that had been fully disclosed.  While the clause did exist, the allegation it had been in any way disclosed was patently false.  I then knew something strange was going on, but I did not yet know what.  It took me awhile to dig up the puzzle pieces and fit them together.  What was happening was that the levels of fraud in the mortgage market had become so obvious it was no longer politically feasible to continue ignoring them, and so the regulators had been awakened from their previously mandated slumbers and were now on the move.  Wells, Chase, Goldman Sachs, and all the other players needed to spread some chicken feed to keep the regulators distracted while they got on with the business of lining up a nice collection of marks (AIG, Bear Stearns, Lehman Bros., pension funds, and mortal schmucks who believed the rating agencies were playing a straight game) to take the garbage off their books.  The regulators pounced on the chicken feed in Spring 2007, which gave the players enough time to keep playing.  And then in 2008 everything conveniently hit the fan.  Wells got a seat at the big-boy table via taking over Wachovia, Chase got a new lease on life via its sandbag takeover of Washington Mutual and its sweetheart takeover of Bear (I imagine Barclays wishes it had gotten a deal like that for Lehman,), those with cash (And in spite of, or more likely because of, all the illiquidity, certain players had piles of cash.) snapped up piles of assets on the cheap (Because after all the purpose of bubbles is to pop them to allow further asset concentration in the hands of Those Who Matter.), and we hit the reset button for the next bubble.  So the evidence indicates the bubble pop was delayed by over a year to protect certain players that had created the bubble in the first place.

Anyway.  In the middle of all this, August 2006 to be precise, Peter Schiff concluded the real estate party was over and things were heading down.  In December he noted the market had peaked the prior December (Now when was it again that I called my shot?) and would crash in 2007.  It's apparent he was just looking at market fundamentals (as was I) and thought the market would behave according to those fundamentals (as did I), having no real knowledge of the market manipulation going on that would stall the inevitable for over a year (knowledge I did not have either).  But unlike me, Schiff became a major talking head and got lots of influence and money.  But I'm not bitter.  At least not much.  Because I can point to Schiff as an example of how even a broken clock is right twice a day.

Because since then he has a record of being spectacularly wrong.  He thinks Medicare should be slashed, demonstrating a fundamental ignorance of how Medicare works, how it could work if expanded, and how it would be better than our current system of no one seeking medical care and when they do they have to file bankruptcy.  He thinks we should replace the current income tax system with either a sales tax (which would be regressive and hit hardest those least able to afford it) or a flat tax (which would be little better).  And in a doozy of pretzel logic, the US went from being a creditor nation to a debtor nation in the 1970s because people stopped saving.  Yes, that must be it.  Let's ignore the October 1973 OPEC embargo that ended the US's energy price advantage that had kept its products competitive around the world.  Let's ignore the resulting recession that destroyed millions of jobs.  Let's ignore that most people had no options allowing them to adapt to this new normal because our entire society was based on urban sprawl and the automobile.  Let's ignore that productivity kept increasing, but instead of any of that gain going to wages, it was all syphoned off to pad corporate profits.  Let's ignore that in spite of the recession, expenses were still going up even though wages weren't.  Let's ignore that families had to get second, third, and fourth incomes to try and make ends meet.  Let's ignore that that didn't work any better then than it does now.  And let's ignore that people stopped saving simply because there was nothing left over to save.  Schiff's positions are designed to keep moving public and private money from all of us to the 1%.  He ought to change his name from "Schiff" to "Shill".

But he must be getting desperate, because with his latest move, he has outdone himself.  He has teamed up with none other than Jim Rickards.  I've noted the credibility, or lack of same, of Rickards's "financial advice" elsewhere.  Now they've partnered up and doubled down.  And what they're selling is no better than ever.  As I've said more times than I care to count, just because you've seen somebody on TV or YouTube doesn't mean you should listen to them.

"Investment Advisors"

Among my activities as a lawyer is being an arbitrator for FINRA, the entity that regulates financial advisors and brokers.  In fact I'm rated to chair arbitration panels.  There hasn't been much activity of late, which I chalk up to two things: 1) There hasn't been a big downturn in which a bunch of people lost their shirts and want to blame (often with good reason) their financial advisor, and 2) I have blasted both investors and advisors, so counsel doesn't where my biases lie (In truth I have a reality bias, i.e. I go where the facts lead because, as John Adams said in his statement to the jury in his successful defense of the Boston Massacre soldiers, "Facts are stubborn things." [which, btw, has the opposite meaning of Reagan's misquote].).  Which is a long way of saying that, if I issue a warning about someone purporting to be offering financial advice, I know something about the topic, and I'm not acting out of some grudge.

That said, the source of this entry is all the snake-oil salesmen who are purporting to offer financial advice.  I'm going to lay out some warning signs, and I'm going to use one outfit as an example, because it seems to hit the major points.

Agora Financial is a major player in this field.  I've been receiving multiple pieces of spam from them and their assorted affiliates daily for years, so I've been able to watch them over time.  I've done the research so you don't have to (Just another service I provide.).  The principal players are Porter Stansberry and Jim Rickards, with long-time hanger-on James Altucher, and new hanger-on Robert Kiyosaki.

1. The first thing you should ask before you take someone's financial advice is, "Who are these people?"

Stansberry, to put it charitably, is a publisher and commentator.  He is a gold bug, which is never a good sign (Gold is a perpetual underachiever as an investment, and anyone who promotes gold-backed currency doesn't understand how money works and is campaigning for a level of deflation that would return us to the 14th Century.).  If he has ever held a financial advisor's or broker's license, he doesn't advertise it, and real financial advisors are obligated to disclose this information.  Another thing he doesn't disclose but would have to if he were legit is that the SEC nailed him about 15 years ago for lying about his advising record in order to promote his stock tip newsletters and also lying about the risks present in the tips (The fact that Karen Martinez and her mob here in the Salt Lake SEC office pulled this off just shows how ham-fisted Stansberry was, because as I have commented before, Martinez led The Gang That Couldn't Shoot Straight.).

Rickards actually has some credentials.  He held several FINRA-regulated licenses (Series 3, 7, 24, 30, and 63) but apparently no longer does.  He has a JD, an LLM in tax, and an MA in international economics.  OK so far.  Then you start seeing things that make you shake your head.  He's another gold bug.  He was general counsel for Long-Term Capital Management, yet another "smartest guys in the room" operation that went disastrously belly-up 20 years ago.  As general counsel he must have been in on everything that mattered, and if he was as prescient as he now claims to be, he would have seen things were going extraordinarily wrong.  But all we know about his role is that he negotiated the government bail-out (i.e. created an exit strategy for the guys who created the problem at taxpayer expense).  He makes noise now about how he has testified before Congress, which he did, 10 years ago.  And it wasn't before one of the financial committees; it was before a subcommittee of the Science and Technology Committee, where he was talking about financial modeling.  I've read the transcript, and it's 14 pages of impressive-sounding blather.  Lately he's been holding himself out as "a high-ranking member of the US Intelligence Community" and "the CIA's Financial Threat and Asymmetric Warfare Advisor".  Let me tell you about folks who claim to be high up in the CIA without actually being in the Company.  They're like those guys who claim to have been Special Ops in Vietnam but it was all secret so they can't tell you about it, but trust them, they earned six Purple Hearts and three Medals of Honor at places like Muk Wah and Sin Loi, it's just that their file is all sealed up in the Pentagon.

James Altucher first blipped on my radar 10 years ago with a bit of total lunacy on Huffington Post claiming the economy had already turned around and to keep it going we needed to ignore several well-founded rules of financial and economic management.  I won't go into details here, but I savaged his position at the time as being perfect if you wanted to replace the economy with a kleptocracy, and it's been his MO ever since.  If I were writing the piece today, I'd start by channeling Luke Skywalker, "Impressive.  Everything you just said is wrong."  He used to say cryptocurrencies were a scam but now heavily promotes them, probably because the winds of hot money shifted (FWIW, I've always considered cryptocurrencies, as presented, a scam.  They aren't currencies, they're securities of a sort, they aren't terribly useful as either investments or wealth storage, and Heaven help these pyramids and the folks inside them when the regulators finally decide to descend on them, but that won't be until all the players have left the building and the only ones left are the marks who bought in because BLOCKCHAIN!).  I'll just leave the rest to someone who has actually dealt with him.

Kiyosaki is a special case.  He has admitted that Rich Dad, Poor Dad is made up, but people keep buying it and keep attending those seminars (Which he never attends.  He just lets his name and smiling face be plastered on them.  For a fee.  BRANDING!).  He bankrupted one of his companies to avoid paying a judgment debt.  The debt was about 1/20 the alleged annual revenue of the company.  With a revenue stream like that, obtaining financing to pay the debt would have been easy, far easier than filing bankruptcy, which means there were only two reasons for filing: Either he just plain wasn't going to pay (no guarantee of that in a Chapter 11 reorganization) or he couldn't get the financing because the revenue stream wasn't as represented.  Neither looks good for a financial advisor.

2. What are they selling?

A financial advisor provides a particular service: Set up an account with an advisor, and the advisor will manage it, the level of management depending on the specifics of your account terms.  And they're obligated to disclose to you how successful they've been.

Agora and companies like it don't sell management services.  They sell tip sheets and seminars ostensibly telling you how to manage your own investments.  And they don't disclose a thing about how successful they have been.  The SEC nailed Stansberry for misrepresenting his track record.  His crystal ball since then hasn't been any better.  Rickards's history is no better.  Altucher?  Go reread the link to Steemit above.  Kiyosaki?  It's all a pitch for "investment courses" that will cost more than any return you can possibly realize.  Run a cost-benefit analysis, and buying what they're selling makes no sense.

3. How are they selling it?

A legitimate advisor wants you to make money and will advise you accordingly.  He or she wants you to make informed decisions about your investments.  If the markets are heading down, the advisor will have you move into hedge positions to protect yourself.

Agora and the like play on fear and bias.  They constantly preach the imminent collapse of the economy.  They've been doing it for years.  They even keep recycling the same pitches, with obvious voiceovers changing the date the collapse is supposed to happen.  And they've been wrong every time (Interestingly, they reject the one thing that could actually bring about the collapse they keep predicting: climate change.).  Fear is a good way to sell snakeoil to marks, but it isn't a good basis for investing.

Neither is bias.  The most noticeable one is political.  These folks are all fans of President Trump, perhaps in part from sincere beliefs, but also in large measure because they are targeting a certain audience.  Nothing inherently wrong with that, unless it colors the advice they're selling.  Which it does.  Currently, they loudly broadcast that Trump is trying to do X, Y, and Z, that these moves are all brilliant, and that they will save everything if Trump is allowed to implement them.  But five years ago they were claiming Obama was trying to do the same things, except that if he did them, they would bring about immediate collapse.  Identical actions tend not to bring about opposite results.  Claiming they do?  I'll let you decide what to call that.

Misrepresenting the "opportunities" you're presenting is not a good advising method either.  Rickards has a doozy where he's holding Trump's budget proposal and says that on a certain page is a plan that will make you scads of money.  I got the document and looked at the page.  It's Trump's proposal for rebuilding national infrastructure (which hasn't happened but desperately needs to because about every aspect of our infrastructure is a wreck).  So if you're a construction contractor, you can bid on government contracts, perform them, and get paid.  That's their "investment" tip.  Another is an "obscure" law that will have the government paying you all sorts of money for your property.  If you look it up, what it says is that if you have a building, and the government decides to lease it, they'll pay you rent.  Another great tip.  A final example I'll give is a mysterious type of trust that will pay you piles of money.  They call it an Eisenhower Trust, undoubtedly just to invoke his name.  What they're really talking about are real estate investment trusts or REITs.  So if you invest in one, you'll get a piece of the return.  More great investment advice that is surely worth its cost.  I would note that REITs were the vehicles that held all the mortgage-backed securities and were the core of the financial crisis in 2008, so a return on your investment might not be such a guarantee.

4. Do they have "affiliates", and are they dodgy?

Legitimate advisors do not have affiliates, other businesses they have advertising and referral arrangements with.  An advisor may know lawyers or CPAs or real estate agents who can help you with certain issues, but the advisor is not in any kind of pay-for-referral relationship with any of them.  There are many good reasons for this, but probably the biggest is that they are illegal.

Agora and the like have piles of affiliates because that allows cross-platform promotion and getting your pitch in front of more people.  And are these affiliates dodgy.  Let facts be placed before a candid world.  One claims campaigning against sexual harassment is a threat to men.  Another claims it has herbal cures for cancer and diabetes.  One argues you should be able to carry firearms even if you've been found judicially incompetent.  And another one claims that Mexico is sending all those illegal immigrants across the border in a deliberate plan to undo the Treaty of Guadalupe Hidalgo and take back the southwestern US.  I'm not making any of this up.

If someone wants to be your financial advisor and flunks one of these tests, you probably ought to give them a pass.  If they flunk them all, well....

Free Capitalist No Longer Free

OMG, they finally nailed Rick Koerber to the wall.  It ought to be amazing it took so long, but given Utah's track record in such cases, I guess the miracle is that the case was prosecuted at all (Note that it required bringing in an outside judge to finally make this fly.).  Now I hope the Tenth Circuit doesn't bollocks the inevitable appeal.

Former Client

I see that a former client has pleaded guilty to a pair of felonies for an "only in Utah" scam.  I represented him a number of years ago in a business dispute.  He was also trying to get some kind of mining company off the ground.  Our politics were quite different, which thoroughly upset him, so he ended up getting a different attorney.  Over the next few years, I saw his mining company being praised in the local media.  I reached out a couple of times to congratulate him and see what he was up to, but he never responded.  I guess now I know what he was up to.  It's a rare attorney whose clients tell him everything, and probably a miserable one too.  And by the way, just because someone is being praised in what passes for the news media around here, it doesn't mean he isn't a total fraud.

If it Sounds too Good to be True...

...it is.  I've been hearing a lot about crowdfunding and have been asked about it be clients.  To put it mildly, I've been leery.  Basically just going out and asking people for money?  First, how do you honestly distinguish it from panhandling?  Sure, the solicitation says it will give you a return if it succeeds, but given the rate of success with start-ups, what are the odds?  Second, how can you even remotely provide adequate disclosure?  The whole thing sounds like a securities fraud charge waiting to happen, and that's what I've told clients.

Over the summer I had a chance to attend a lecture by Joseph Nowoslawski, who is an angel investor who has really dug into crowdfunding issues and the new SEC regs on the process.  His results?  Crowdfunding can work if you have the right circumstances, but compliance is expensive with a capital E, and as he and I discussed afterward, a good old Reg D offering under 506 still makes more sense for the overwhelming number of start-ups.

After the lecture, I overheard a discussion among a few of the other attendees, all of whom were involved in alternative medical treatments.  One was swearing up and down that his liver cancer was gone.  He had quit chemo, gone on some special diet (palm grass and who knows what all else) and was feeling great.  Of course everyone else in the discussion was affirming him all the way.  Folks, there is a very large difference between relieving symptoms and removing a cause.  He had reduced the load on his liver and so was no longer presenting the symptoms the weakened liver had caused, but that in no way means the tumor is gone or will remain gone.  Another issue I have with Orrin Hatch and his efforts to protect all the local alt-med outfits.

Quick fundraising and quick cancer cures.  They both sound too good to be true.  And they both are.

Latest Financial Industry Comments

Over on Credit Slips, we're discussing the CDS mess in the Greek default.  No one over there thinks we've seen the end or even the beginning of the end.  More like the end of the beginning.  I'm sticking to my position that anyone who was relying on a CDS to cover his position was willfully ignorant and deserves the haircut he'll be getting.  I've added that anyone who really wanted insurance for his investment should have been able to buy something from somewhere, and that if no such insurance were available, that a CDS was the only option, we now know as an absolute fact that the markets are nothing but a crooked casino.

On London Banker's blog, we're discussing how to fix regulation methods.  Following up on another comment, I've said that the touchstone should be whether the financial industry can explain an investment to the regulators.  If it can't, the investment doesn't fly.  After all, if the regulators can't understand it, how can the investors?

It Wasn't Illegal?

On 11 December, President Obama was interviewed on 60 Minutes.  The transcript is here.  The interview is pretty much what you'd expect.  Then, about three-fourths of the way through, comes this:

I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn't illegal.

Excuse me?


First, it must be nice to deal with US news media, which consist almost entirely of ignorant tyros who do what they're told.  Steve Kroft swallowed that comment and just kept pitching softballs.  A BBC interviewer would have gone straight at that comment and pointedly asked the President just what in Hell he was talking about.


Second, loan fraud is illegal, and we've had well over 31 flavors of it in this mess, with new ones cooked up by B of A, Chase, and RBS every day.  Securities fraud is illegal, including stuffing investment instruments with cherry-picked, bogus "assets" and then betting against them (I'm looking at you, GoldSacks.).


Mr. President, as a former prosecutor I can tell you that, just because your boys aren't pressing charges, all this garbage has suddenly been washed clean.  And yes, Mr. President, the DOJ folks are your boys, however much you may want to hide behind prosecutorial independence.  You picked Holder, you picked the US Attorneys.  Their decisions are your decisions.  Own them.