Last month I wrote a short blog on the hazards of investing in oil and gas well ventures, which are often unregulated investments free from any scrutiny by the Securities and Exchange Commission. If it is an unregulated investment, the sole remedy if you are “bamboozled” is to go to court.
Regulated securities, namely stock companies registered with an exchange, are subject to reporting and quality controls, uniform accounting standards, and the like. While not perfect, the Securities and Exchange Commission has “your back.”
If an investment is “unregulated”, such as a private equity investment, an investment in an oil well, or an option to participate in a solar wind farm project, then the promoter is not subject to any reporting or quality controls, and no uniform accounting standards. Stated simplistically, it is easier to “lie.”
I have been involved in numerous cases where an innocent investor has been duped. Almost assuredly, the promoter that duped you was smart enough to cause your investment to disappear. The investment was free from any oversight by the Securities and Exchange Commission, and your chances of being “made whole” are very remote. Recently, I was an expert witness in an arbitration proceeding. While my client was awarded a generous monetary judgment against the unscrupulous promoter, there are no assets owned by the promoter against which the “duped” investor can recover his judgment. As the old saying goes, “you cannot squeeze blood out of a turnip.”
It is one thing to win a lawsuit; it is quite another to collect the money judgment. Sure, if you win against Apple, there are plenty of assets against which to foreclose; but if you win against FLYBYNIGHT LLC, good luck finding meaningful assets against to satisfy your monetary judgment.
But I continue to have clients and to hear about individuals and institutions that may have been “duped” by unscrupulous promoters. These promoters are almost always soliciting investments in unregulated investments. Here are just a few:
A local Austin charitable foundation is involved in a dispute over an investment in a private real estate investment firm. The real estate firm is owned by a 33-year old who wants to be known as “the youngest self-made real estate billionaire.” According to the media, the firm’s founder is not only associated with a real estate empire but with a series of recent high-profile bankruptcies and a much-publicized raid on the owner’s home and business office last year by FBI and U.S. Department of Treasury agents. A good investment by the Foundation? Just who made that investment decision? Who made that recommendation to the Foundation?
I recently counselled a potential investor in an “oil deal” promoted by a limited liability company. He had been referred to the LLC by a local attorney and businessman. Several years beforehand, the principal of the LLC had been found by the Securities & Exchange Commission of being a salesman for an illegally unregistered securities offering. He, personally, had been ordered to return $1,736,605.66 in commissions plus interest of $299,407.30. In his defense, he was not the subject of a criminal indictment. This was easy to determine, just a couple of inquiries on Google. Now, $1.7 million may not be a lot of money to you and me [that’s a joke], but I would not give it back “just for the asking.” So why did this guy do that? Are you willing to risk your hard-earned money with him? Wisely, the potential investor decided to look elsewhere. Curiously, though, he went back to the local attorney and businessman for another suggestion – even though they had done their due diligence so sloppily the first time that they hadn’t spotted the “red flag” that we located in, literally, 5 minutes.
Recently, an individual contacted me about a potential investment in a solar panel farm. The sole asset of the solar panel farm operator is an “option” to acquire a piece of land upon which a solar panel farm can do constructed – assuming everything else goes right. The solar panel farm company does not own real estate, does not own one solar panel, does not have one employee. All it has is an option to purchase some real estate – if and when it gets “your money.” Is this a private equity investment, or a private “nothing” investment? What happens to your money if the panel farm is not constructed? Looks to me like your investment will be going directly into the promoters’ pockets as incidental salaries. And once gone, well, it is probably gone. How did that individual find that solar farm promoter, anyway?
Just where are you getting your financial investment advice? Where here are three places to avoid:
1. Anyone who recommends a 33-year old “self-styled” billionaire who has had his home and office raided by the FBI and IRS;
2. Anyone who recommends an investment in a company owned by an individual who recently had to pay back over $2 million; and
3. Anyone who recommends you give money to a company that has absolutely no assets.
If a deal is too good to be true, well, it is probably too good to be true. If your investment counsellor is recommending investments in companies owned by individuals recently raided by the FBI, by individuals who paid $2 million in fines to the federal government, or companies whose only assets will be “your money,” then, quite frankly, you need new investment counsellors.
Okay, where does one find these good investment advisors? Well, one other place not to go is to a lawyer – we often make some of the worse decisions. However, a good lawyer may be able to help you determine whether the advisor you are considering “knows his stuff.” And, more than likely, the investments to which you are steered should be in registered securities with track records. Here’s an example of what a good investment advisor should be able to provide you (made anonymous by deleting the fund name and substituting “SECRET”) -
Of note, the SECRET Growth Fund invests in publicly traded stocks; there is a historic track record; and you can learn more by visiting the Fund’s website: http://SECRETfunds.com.
If you aren’t getting something like this from your investment advisory, well, you should be!
by Jack M. Wilhelm
Edward Wilhelm and Jack Wilhelm provide tremendously high value legal assistance to a large number of very desirable clients.
THE WILHELM LAW FIRM, 5524 Bee Caves Road, Suite B5, Austin, TX 78746; (512) 236 8400 (phone); (512) 236 8404 (fax); www.wilhelmlaw.net
DISCLAIMER: The information on this site is not intended to and does not offer legal advice, legal recommendations, or legal representation on any matter. You need to consult an attorney in person for legal advice regarding your individual situation.