The Financial Seminary
By Gary Moore, published by MSCI on January 26, 2009
(Note from the Editor: Gary Moore was a senior vice president of Pain Webber before founding his own firm as "counsel to ethical and spiritual investors." He has written extensively on the ethical management of money and has been a financial commentator for UPI. He has very graciously permitted us to post her perspective on the Madoff case. Also see a link to his organization at the end of this article. The following is Mr. Moore's work--AP)
Bernie Madoff has apparently perpetrated a fifty billion dollar Ponzi scheme that has devastated investor confidence, as well as several charities in Palm Beach. A hedge fund operator in my hometown of Sarasota has apparently perpetrated another swindle of three hundred and fifty million dollars. It too has affected hundreds, as well as the Y on whose board I serve and several other charities. The more things change...
Thirty years ago, I trained at Merrill Lynch with a broker who, after leaving Merrill, perpetrated the largest Ponzi scheme in the history of Florida until Madoff. We attended church together and played tennis at his country club.
Later, I served on the board of an international ministry affected by the New Era funding scandal, probably the largest Ponzi scheme to hit our nation's charities. I then served on another major Christian board with Ken Lay of Enron, who was considered a most gracious and generous man.
It's inevitable that you will lose some money during thirty years of investing. But I've thus far avoided the worst Ponzi schemes and scandals largely by understanding these realities:
1) Financial con men never look and act like con men. (And they are usually men, though they usually have gracious and sociable wives.) Their schemes depend on confidence, so they go to great lengths to look and act impeccably respectable.
2) So with the possible exception of heavily regulated trust companies, never, ever entrust one person or organization with all your investments. If you do use one financial advisor, consider having that person or institution diversify among non-affiliated investments.
3) Ponzi operators always insist on secrecy and total control, so always separate the management and custody of your money. The custodian can therefore provide a valuation of your holdings that is independent of your manager's assurances.
4) The victims of financial schemes are usually motivated by fear or greed, rarely caring how prudently or ethically their returns are generated. Look deeper, perhaps even utilizing "socially responsible" strategies. That might help you avoid not only Ponzi schemes but Enron, Worldcom and so on.
5) Never believe it won't happen again or to you. Note I said I've avoided such scandals "thus far." I know all too well we live in an age of synthetics, when wolf fur can be made to look remarkably similar to wool.
You can read more of Gary Moore's ideas at www.financialseminary.org. Gary is a registered representative of, and offers securities through NPC of America (NPCOA), member FINRA/SIPC. The Financial Seminary and NPCOA are separate and unrelated companies.