Is It Legit? A Quick Look At Different Types Of Financial Fraud

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Is it Legit? By David Merkel, CFA of AlephBlog

I’ve written a lot about financial fraud at Aleph Blog.  I try to  encourage people to be skeptical, because it is genuinely rare when a deal is exceptionally good for an average person.  Most of the time in life, you are doing pretty well if you are getting a fair deal, particularly when it comes to financial matters.  Most people selling financial products know more about the product than the prospective buyer.

Thus, Aleph Blog has written about a wide number of deals that are bad, and those that are outright fraudulent.  (At the end of this article, there will be a sample of articles that I have written.)  Not that anyone appointed me, but I regard this as one of my sub-missions, in writing this blog.  Cleaning up the investment world should be a goal of many legitimate investors, because the cleaner things are, the better the culture of trust will be for legitimate financial products.

Now, Aleph Blog does this service on two bases: free and paid.  Free is for the simple stuff.  If you write an e-mail to me asking “Is this legit?” and it is simple enough for me to give a quick answer through a blog post, I will likely (but not certainly) write a post on it, or point you to one I have written.  I may even answer the companion question, “Is it a smart thing to do?”  Most of what I do here will fall into the free category.

The complex stuff is another matter.  I have done analyses like these for prior employers, and on a freelance basis for wealthy individuals and corporations.  Examples have included:

  • Analyzing whether the Permanent Portfolio idea works or not (and other investing theory questions).
  • Analyzing a complex tax avoidance deal that involved insurance, securitization, and other factors.
  • Analyzing whether a private business deal looks legitimate.
  • Analyzing whether a securitization deal looks legitimate.
  • Analyzing complex bonds or other securities for value.
  • Giving a second opinion on an investment question.
  • Giving a second opinion on a new investment product.
  • Giving a second opinion on a financial plan.

I like an occasional complex project because it keeps my skills sharp.  I am a good financial modeler, and though I did not go to the finals the last two years in the Modeloff competition, I placed well in the first round the last two years, and in the second round in 2013 was in the top half, and though I qualified, this year I could not compete in the second round due to a schedule conflict (presbytery meeting).

If a project does not fit my expertise, I will turn it down.  Why waste your time and mine?  If I don’t have slack time, I will turn it down — my investment clients come first.  But if you have an interesting project that you think might fit me, email me, and let’s talk.  I am willing to sign confidentiality agreements, and not publish the results if need be.

Beyond that, let’s make the financial world better, and eliminate as many scams as we can.

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Hey, thanks for reading… ;) and play it safe, please.



About the Author

David Merkel
David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.