irondoor91

WexTrust's (Alleged) Fraud - What Are the Lessons For Investors?

You may be familiar with the similar case of the Maricopa Investment Fund(s) located in Naples, Florida in the late 1990's. The perpetrator of the Maricopa scheme, one David Mobley, said that he had a computerized program to trade the stock index futures market. He had been in "business" since the mid-1990's and had taken in more than $100 million from investors. His reported performance, which he sent to investors monthly, did not ever show a losing month. So that investors would be somewhat reluctant to withdraw money, Mobley told them that they did not directly own the investments, but owned shares of an offshore company that did not pay US taxes. As long as they held their investment, they owed no tax. However, if they did need a withdrawal in an emergency, money could be sent.

When questioned about an audited financial statement, Mobley declared that since his "system" was a secret, he would not allow any accounting firm to audit it, nor would he show brokerage statements. He claimed that if anyone saw his trading pattern, they could "reverse engineer" his system and steal his secret methods.

He had lavish offices in Naples where he had prominently displayed photos of himself with former Presidents, local politicians, ministers, etc. He was a large contributor to charities. Of course, he was also a golf course real estate developer too. Most of the local wealthy had invested with him.

His son and son-in-law (in their 20's) operated a large trading room with dozens of computer screens showing various graphs and positions. Visitors and prospective investors were invited to view the action. When asked what was being traded, the answer was that "Dad is trading from his home so that he won't be distracted". No actual trading was taking place at the office.

His brother, son, son-in-law, daughter, wife and ex-wife were all involved in the operation. His wife was CFO. When later asked where they got the information to compile monthly investor reports, they replied that Dave got the data from an administrator in the Cayman Islands and they got it from Dave. The back office people in Naples never actually saw the trades and account data. These people were all dependent on Mobley for their livelyhood.

Due diligence would have shown that Dave Mobley had been charged with fraud in Kentucky years before. Rather than having a successful track record, he had left Kentucky after bankruptcy. His previous work experience had been on an automobile assembly line.

Investors have recovered approximately 50% of their capital. The lesson learned is that due diligence is required, along with audited financial statements and the understanding that no matter how much you dig or audit, a really good psychopathic criminal is probably going to screw you anyway. They see other people as just pawns to be used to fill their empty lives, and somehow they deserve it.

Some common themes in these frauds:

. Affinity goups (wealthy, connected, charitably inclined, greedy).
. Some sort of "secret" or proprietary program.
. No audit by reputable accounting or law firms.
. Simple statements showing only the "value" of your investment.
. Non-professional family members involved in the operation.
. Some type of tax dodge or angle.
. Unusual reluctance to discuss the specific details of their investment strategy or results.