People regularly ask for advice about various investment ‘programs’ that they have been introduced to, normally by a ‘friend.’ These programs can be found in New York, London, the Cayman Islands and the Bahamas, practically everywhere!
There are also a growing number of religion-based investment schemes that trick people into investing money. “I’ve seen more money stolen in the name of God that in any other way,” said Deborah Bortner of the North American Securities Administrators Association. And there’s always the occasional pyramid scheme floating around somewhere.
These programs may claim to be investing in foreign currencies, in S&P futures, in real estate, in bank debentures, prime bank notes but the promise is invariably the same: They all offer what appear to be extraordinarily high returns with virtually no risk.
You may be asked to sign a ‘Confidentiality Agreement’ so as not to divulge any proprietary information, which is quite ironic because they rarely give you information that explains exactly where or how your money is to be invested.
You may be told that the investment is open to ‘members only’ which is their way of asking you to keep your mouth shut because what they’re doing is fraudulent.
There were a few different such programs available in Costa Rica. One popular program was managed by a ‘Tico’ (a Costa Rican) who said his business was perfectly legal in Costa Rica but never explained to anyone exactly what his organization invested in and how it generated returns of 3-5% per month.
The ‘grandfatherly businessman’ said that he invested heavily in real estate and also owned a helicopter transport company. In the local English newspaper, the ‘Tico Times,’ he was quoted as saying that: “The best guarantee I can give anyone who has professional dealings with me is my clean reputation as a serious, honest and responsible businessman. Those who have had dealings with me are well aware of the guarantee that they will never, ever see me involved with anything underhanded or illicit.”
A 3-5% per monthly return is simply staggering! If he was paying that to his investors, how much were they actually making? If his ‘program’ was indeed legitimate, (and for the sake of their investors we still sincerely hope it was), he deserves recognition because he achieved the kind of long-term, stratospheric returns that have eluded the brightest investment and real estate managers the world has ever known.
However, if someone needs their money returned would he have to run out and sell a building? How would his ‘guarantee’ hold up when real estate values decline? How can we know if his ‘guarantee’ is good or if his ‘program’ is legal if he won’t tell us what he is investing in? Why would anyone invest in anything when they do not know exactly how, or where their money is to be invested? Or perhaps they just don’t care?
Another ‘program’ was a ‘foreign exchange trading program.’ The brochure referred to an investment of US$100K in their ’10 year commitment plan’ (which means you cannot take your money out) and from July 1994 – June 2000 a $100K investment would supposedly have grown to $3,055,435.70
Incidentally, this is just 60% of the profits, the other 40% is kept by the company as their share of the ‘profits’. It refers to the first trading month and states that: “At the end of the first month (the company) produced a gross profit of US$26,778.10. The company allocated 40% of the profits for expenses, and the investor’s shares in the ‘Fund Name Withheld’ 10-year plan appreciated in value by US$16,066.86.
According to them this miraculous fund generated a 26% return in its first month!
In their literature, the investors’ percentage of the monthly gains ranged from 0.65% all the way up to 35.27%! The world’s best foreign exchange traders are right about 65% of the time yet these people are able to generate huge profits every single month without ever having a month where they lost money. And if that’s only your 60% and they kept 40% of the profits as ‘expenses,’ this means the average return is actually closer to 8% per month.
“My best trader makes money only 63% of the time. Most traders make money only in the 50-55% range. That means you’re going to be wrong a lot. If that’s the case, you better make sure your losses are as small as they can be. And that your winners are bigger.” Steve Cohen – Professional Trader.
The people that were selling this program in Costa Rica have no qualifications or experience as investment advisors. They were, in fact real, estate agents and travel agents. This program also paid you a big commission (in stock, not cash) if you bring in a ‘friend’ who also invests in the program. That’s another warning sign!
Should you put your money into one of these ‘programs?’
If you cannot find out exactly what is done with your money, we would suggest that you invest your money elsewhere. No legitimate investment advisor will refuse to explain how they will invest your money.
Ask yourself the following ‘basic’ questions:
- Who handles the money exactly?
- Where was the company formed & registered?
- Who exactly owns the company?
- Where is the company registered to do business?
- Where is the company’s physical headquarters?
- Who is the President?
- Who are the other Executive Officers of the company?
- What part of the world are they from?
- What is their investment education and background?
- Are they qualified to do what they say they do?
- Where are the executives and the company ‘registered’ to do business?
- Are they and their company allowed to sell investments in Costa Rica?
- Are they licensed? If so by whom?
- How many employees do they have? Are they licensed?
- Who and where are their traders?
- What sort of education, experience and licenses do they have?
- What exactly do they invest in?
- Whether it’s currencies, S&P futures or whatever the financial instrument – what is their basic investment strategy?
- How exactly do they manage the risk?
- Who audits their company’s track record? Otherwise how can you know they have a ‘real and verifiable’ track record?
- Where exactly do you send your investment money?
- With which professional bodies are the traders and the principals of the firm registered?
- Who can you call to verify this information?
- Who is the person selling you the investment ‘program?’ (Would you normally take investment advice from your travel agent?)
- Does the person selling the investment have any qualifications, training or experience in advising people with their investments?
Take notes of your discussions and write down the names of all of the people involved. Please don’t listen to any nonsense about how the people managing the ‘program’ are very concerned about their ‘privacy.’
Confidentiality is certainly a privilege that should be enjoyed by the client, but not by the principals of the investment firm. Find out exactly who they are and please remember! This is your money. You can ask any damn question you want.
If you had developed a foolproof trading ‘system’ that could generate 8% plus per month, why would you even want other investors to invest with you? You certainly would not need them.
Even if you were just a bankrupt computer genius that stumbled onto the ‘system,’ you wouldn’t even need to find the seed capital to start trading with it. You could sell that system for a hundred million dollars tomorrow.
The world’s biggest and best traders are widely known and if anybody with a ‘no risk, high yield’ investment tells you that nobody knows their traders – that’s nonsense too! When a professional places trades, makes big money and never loses money, I assure you that this will get noticed by the brokerage firm that’s executing their trades and word will get around – fast!
For whatever reasons, the ‘programs’ mentioned above and many more no longer exist and it is estimated that in the last ten years, Costa Rica has lost about US$600,000,000 in assets because of these ‘programs.’ Yes! That’s six hundred million!
There are some very smart and creative people in Costa Rica. However, how can these nameless, faceless experts generate returns that are literally five times better than the returns of the smartest, most brilliant traders anywhere else in the world? Traders who have invested hundreds of millions of dollars a year on technology, in developing incredibly complex computerized trading systems and who have years and years of experience!
Whether it’s in New York, London, Hong Kong or San Jose – any legitimate investment company will expect to be asked lots of questions, and a legitimate investment firm will also be happy to give you the answers to every single one.
Written by Scott Oliver, author of Costa Rica’s Guide to Making Money Offshore in Bull & Bear Markets for non-US international investors only.
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