Wealthy Floridians Lose Millions in Alleged Investment Con

[NNN0LHI]

http://ap.tbo.com/ap/breaking/MGB8K2X7CCE.html

MIAMI (AP) - Dozens of wealthy investors were scammed out of $160 million by three self-proclaimed hedge fund operators who set up flashy offices in Palm Beach County, took their money and ran, federal investigators said.

Now, months after authorities became suspicious, two of the three partners have fled the country, and the third isn't answering questions from investigators.

Most of KL Financial's 200 clients were men of retirement age. Gary Klein, a lawyer representing dozens of them, told The Miami Herald that he has clients who lost everything. snip

Mike Tein, one of KL's court-appointed receivers, said the three men directly received $20 million during their six-year reign at KL, spending lavishly on million-dollar homes, exotic sports cars and frequent trips to Las Vegas.

[napi21]

1. Why don't these people stick with a well established Co?

I understand the smooth talkers and all, but this has happened SOOO often! There are hundreds of investment companies like Fidelity, Merrill Lynch, etc that guarantee their customers, if one of their agents steals from them, the Company will make it good!

I do feel sorry for these folks, but I can't help ask...HOW CAN YOU BE SO STUPID?

[madeline_con]

2. "HOW CAN YOU BE SO STUPID?"

Good point. You'd think they'd be old enough to know if it sounds too good to be true, it probably is.

[Vincardog]

3. GREED nt

[kestrel91316]

20. Greed indeed. And now the greedy can just go work at

McDonald's for minimum wage like the Little People.

Boo f---ing hoo.

:nopity: :nopity: :nopity: :nopity: :nopity: :nopity: :nopity:

[William769]

4. Like ENRON?

[NNN0LHI]

5. Because I bet these hoods were claiming to be "affiliated" with...

...someone like Fidelity, Merrill Lynch, or other large investment house. Thats usually the way it works. No one bothers to check until its too late.

Don

[napi21]

7. You could be right, but AGAIN, this has happened sooo often,

there can't be anyone that's never heard about these scams! I'm sure the initial contact was made by the "broker". I gotta tell ya, before I'd give NOYBODY any of MY $$, I'd at least contact the maine office and check to make sure the contact was ligit!!!

I'm 62, and I sure haven't gotten that stupid!

[tsuki]

8. Not stoopid, greedy. eom

[Mairead]

9. Privilege and entitlement

Most have had it so good so long that they can't believe it can ever be any other way.

[Iowa]

15. Actually, there is a reason for this...

Wealthy people are frequently incompetent investors; their arrogance puts them at a huge disadvantage. There's even a financial term for this: "Country-Club Syndrome". It goes something like this: it would be beneath them to use the same investment companies as the common rabble. They're accustomed to special treatment and seek out "exclusive" money managers that cater only to the wealthy. While this type of behavior probably serves them quite well in many aspects of their lives, it hammers them when it comes to investing (for several reasons). Often they significantly under-perform people who invest in low cost, no-load mutual funds (i.e. Vanguard - but NOT Merrill Lynch), Treasury Direct, CDs, etc. So this is one area where the common person can tromp the wealthy. It's perfect justice, and I love it!

Shhhhh... don't tell any of your wealthy friends.

[keta11]

19. The issue is that Fidelity, Merrill Lynch and the

other big mutual funds are precluded by federal regulation from using investment strategies like shorting and the use of derivatives, that hedge funds use.

Hedge funds on average do better than funds managed by mutual funds thats why rich people who want to get richer are attracted to them.

[Iowa]

21. Nah, there's no evidence that hedge funds do better than...

mutual funds, unless one accepts industry propaganda as evidence. Hedge fund performance information (when you can find it) is often plagued with survivorship bias and an unwillingness to share all performance data (those that are doing well at the moment will share their performance - those that are doing poorly, won't). This industry has long been notorious for providing scant information, if any at all. If solid evidence of hedge fund out-performance existed, they'd be shouting it from the rooftops. Instead, more often than not, they hide their results. I can think of only one reason they'd want to hide their performance.

While hedge funds are touted as the investment of choice for savvy investors, the truth is, they are marketed to wealthy unsophisticated investors who are willing to pay a bundle to buy the services of "experts" who claim to be able to provide substantial returns regardless of the direction of the market. Sophisticated investors know that a sales pitch suggesting easy "wealth without risk" is pure bull. In investing there is no panacea. If there was, everyone would jump on the same bandwagon and it would no longer work.

Hedge fund mania is simply the latest in a long line of Wall Street sales gimmicks. These guys are slick operators, selling the same snake oil, in a prettier package.

[keta11]

22. I agree with you that hedge funds are relatively

unregulated and most hedge funds do not report performance. However, average reported performance is better than average mutual fund performance in both bull and declining markets and that is what wealthy people are attracted to. Also traditional hedge funds have more institutional, "sophisticated" money under management than money from "unsophisticated" wealthy people.

There are hedge funds managed by very succesful traders who in good years earn e.g. 50% return and there are hedge funds marketed by boiler room room brokers that are in fact just Ponzi schemes.

[Iowa]

23. I'm pushing my point here because...

I see many at DU who seem to believe that the wealthy have a big advantage when it comes to personal investing because they can afford to hire the highest paid money managers, buy access to exclusive, high cost, investment vehicles like hedge funds, and command lots of personalized attention from brokers/planners. The truth is, all these "advantages" aren't advantages at all. Investing is one area where a humble working-stiff (like myself) has a real advantage if there's a willingness to work hard and learn the ropes. I'd hate to see my friends at DU fall into the same erroneous thinking that snares so many of the wealthy into the "country club syndrome".

Regarding the claim that hedge funds have an "...average reported performance that is better than average mutual fund performance in both bull and declining markets...". The key word here is "reported". You can't just gloss over that. If the University of Iowa basketball team was allowed to exclude their defeats, while other teams had to include their losses - shazam! Iowa would be the undisputed, undefeated champion every year! But that wouldn't change the fact that they had a losing conference record last year. Likewise, hedge fund "average reported performance" doesn't mean squat. It's a completely useless statistic - even worse than useless because it leaves the erroneous impression that hedge funds, on average, beat mutual funds.

Regarding the claim that, "...traditional hedge funds have more institutional, "sophisticated" money under management...". Don't think for a minute that large institutional investors are all that "sophisticated". In fact, the big boys typically under-perform no-load, low expense, balanced mutual funds. For example, the 10 year average total annualized return of large pension plans as of 6/30/2004 was 9.8% per year, while the plain-Jane Vanguard Wellington fund returned 11.66% per year - almost 2% per year higher. Even the average balanced fund did better than the big institutional investors! So if institutional investors are buying into hedge fund mania, it's no surprise because they are notorious for following the herd. They, in some sense, ARE the herd.

Sure, there are "hedge funds managed by very succesful traders who in good years earn e.g. 50% return ", but I wouldn't call them "successful" - I'd say they made the right call - once. And I'd say that their success will likely endure for a very short time, like 1-2 years. And I'd say that luck had more to do with their short-term success than skill. And so what if some of them produced good returns? The same can be said for mutual funds. I have owned funds that have returned 80%+ and it means nothing (except that it's probably time to unload them). Hot hands always turn cold, and over LONG periods of time, almost no one can beat plain old index funds. Those who are able to beat the market tend to do so over a very short term. And for every trader who makes the right call, there is another who guesses wrong. If you flip enough coins, eventually you'll hit heads 10 times in a row. Same goes for traders. If you have enough of them making educated guesses, a few will beat the odds - about as many as pure chance would produce. And therein lies the need for hedge funds to report only selected returns.

Sophisticated investors will tell you this: There is a direct relationship between risk and return and you CANNOT hire ANYONE to change that for you! Such a person simply doesn't exist. And there is no way for you to know, IN ADVANCE, which hand will be hot next year. The industry spends billions trying to convince investors otherwise (hedge funds are only one example) - and they usually succeed. But it's all bull.

[The Backlash Cometh]

6. Let's hear it for privatizing social security!

Will they never learn.

[Coventina]

10. These guys will be strung up for fleecing the wealthy, while

those that rob from the middle-class and poor continue to live their country-club lifestyle. (Ken Lay)

[movonne]

11. I guess the millionaires will have to come down a peg or two..

Social Security might look pretty good to them right now.

[ignatius 2]

12. Too bad, suck it up folks after all you will still have your social

security, that is unless your beloved president assigns private accounts to hedge funds like these.

[havocmom]

13. No sympathy left for well heeled heels who got taken for a ride when greed

overcame common sense. Too many of that class want to blame the poor for their own poverty. Well, folks, these greedy rich folks did this to themselves.

Sure, show us how much better off handling investments on your own will be for the common payroll tax paying worker bee!

No sympathy for people for whom there is never enough. But I suppose there will be spent of taxpayer $$ going to prosecute the con men.

Meanwhile, the guy from Worldcom... he got a year and a day? Yeah, THAT'S justice! NOT

[WinkyDink]

14. Too bad

Except not.

[leesa]

16. Good. Karma sucks, eh?

[bribri16]

17. You can only loose millions if you have millions.

They would rather be swindled than pay taxes that might help someone in need.

[Zorra]

18. Well, I bet they are thankful that Social Security is still there for them

and that it has not been privatized so some republican POS could steal that money too.