This is not a normal book for me to review. The claims made by the book are fantastic, and the subject of the book, Sam Israel, would have a strong motive for self-exoneration. But with any book, unless you have direct insight into what the book talks about, you have to interpret the book consistently, assuming the author has told the truth. That is what I will do.
I have a saying, “It is very difficult to cheat an honest man.” Why is that so? An honest man knows that few things come easy in life, and so if something seems too good to be true, he will avoid someone peddling something that is likely to be a scam.
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But someone who thinks the world is inherently crooked is much easier to cheat, because he thinks that he will be able to outfox others trying to cheat him. He is more vulnerable to playing an inside game that few others know about.
Sam Israel drifted into a Ponzi scheme. He may not have intended to do so, but once you report fake results that are too good, it is difficult to ever come back to true accounting, because the assets have to earn considerably more than average in order to break even. New money helps a lot, and that is driven by great returns, so there is the incentive to keep reporting “too good” returns.
It’s a treadmill, which is why Ponzi schemes always blow up. In Sam Israel’s case, it led to all manner of speculative investments that an ordinary investor would never touch. In the second half of the book, it led to dealing with a smooth-talking guy who charmed and scammed Sam Israel, convincing him that there was a conspiracy that controlled Western governments with a rigged bond market that offered incredible deals to insiders.
Now, to me, anything that seems too complicated to justify the worldview is probably not true. What reason would a conspiracy have to hand out risk-free profits to anyone? Governments or conspirators would pocket the money themselves, and would not let anyone else in. But to a crooked mind that needs an easy win in order to set all things right, this is a perfect setup to separate a fool and his money (or rather, the money of his clients).
As it was, Sam Israel ran out of money and his “hedge fund” collapsed, leaving many foolish investors to mourn their losses.
One more thing: a undercurrent of the book was how they managed to co-opt the auditors. Beware trusting small no-name auditors.
The book is well-written, and if you take it as fiction, it is a real page-turner. But as truth, you are reliant on a few voices, mostly Sam Israel and his friends, to tell you what happened. I’m reluctant to sign onto that, but I can’t fully rule it out either.
Who would benefit from this book: If you like fiction, you will like this. If you want to look into the pathology of a Ponzi Scheme, it is good there also. If you like reading sordid tales of greed, foolishness, and lies, you will like it. Otherwise, avoid. If you want to, you can buy it here: Octopus: Sam Israel, the Secret Market, and Wall Street’s Wildest Con.
Full disclosure: The publisher sent me a copy of the book for free.
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By David Merkel, CFA of Aleph Blog