For Boulder County investors, 2010 has been a year of fraud. We have seen an unprecedented number of seemingly unrelated schemes that have squandered the savings of many unfortunate investors. While this column has covered fraud in the past, this year’s crop merits a fresh look.
The latest case surfaced last week when former Boulder pastor Loren Ankarlo pleaded guilty to felony conspiracy to commit securities fraud in connection with an alleged scheme that cheated investors out of $750,000. Prosecutors alleged that Ankarlo — and two others — issued promissory notes to invest in anti-poverty initiatives in Africa. Instead, the partners allegedly used much of the money for their own purposes and paid outsized returns to the original investors by using new funds coming into the scheme.
In April, Boulder-based Dharma Investment Group owners Bela Geczy and Michael Kass were indicted for allegedly defrauding investors of $18 million. Investors said they were promised returns of at least 20 percent annually. Dharma is accused of issuing promissory notes and using the funds to invest in joint ventures, including a coffee business, a renewable energy venture, and Caribbean real estate.
Richard Mott, former softball coach at Monarch High School in Louisville, was charged in July with fraud for issuing promissory notes to ostensibly invest in a gypsum mine. According to a victim’s lawsuit, Mott told investors that he was a multi-billionaire and promised one client $50,000 in interest on an $80,000 loan.
In September, Colorado officials froze the assets of Mark Hamilton Yost and his Boulder-based Yost Company. At the end of last year Yost reported assets in his company of $28 million, but regulators said that less than $20,000 remained. The former chairman of Flatirons Bank, Yost is accused of using his position there to set up fraudulent loans to pay investors.
Finally, in September, the Securities and Exchange Commission filed fraud charges against Neal R. Greenberg, a Boulder-based investment adviser whose Agile Group had more than $100 million under management. According to investigators, Agile placed investors with New York financier Bernard Madoff and other Ponzi scheme operators.
It’s easy from the outside to dismiss these swindles as simple to avoid and attractive only to the most doe-eyed of rubes. But as the well-connected investors of Madoff can attest, even supposedly sophisticated investors can become ensnared. Here are steps you can take to avoid them:
Don’t put too much in one basket. Sometimes even well-intentioned advisers suffer from bad luck or poor judgment. Private deals in oil and gas ventures, real estate, hedge funds and private equity funds may make sense for your portfolio, but given their illiquidity and high risk you should only have a small percentage of your assets in these types of investments. Another good step is to make sure the fund principals have their personal money invested in the fund alongside the other investors.
Look for funds that are independently audited by a reputable firm. If you insist on putting funds into non-publicly traded investments, make sure that the firm is audited by a reputable accounting firm. Madoff’s multi-billion dollar funds used a cut-rate accountant in a strip mall in Westchester County, a huge warning flag for a firm with tens of billions under management.
Work with advisers that use independent custodians. Most financial advisers hold client investments at a third-party, independent custodian such as Fidelity or Pershing. While clients may receive a quarterly statement from their adviser, they have a direct relationship with the custodian and receive monthly statements from them as well. While there are worthwhile investments that do not use a third-party custodian, these require a much higher degree of due diligence.
Avoid promises of high return and low risk. If a fund claims to deliver 15 percent annual returns with very little risk, the adviser is at best a Pollyanna. Financial markets tend to be efficient and with high expected returns come high levels of risk.
Dave Gardner, for the Daily Camera.