The golden age of grift and fraud

I can write an intro but I choose not to.


My friends often call me the most humblest person they have the honour and privilege of knowing. It is out of the same humility, I’m saying I’m quite wisdomous. Sometimes my wisdomousness scares me. And given all my wisdomness, it is not very often that I’m surprised. But today, I was. Now you all know that The Tipsheet is like The Financial Times for aspiring income redistributors (scamsters, frauds, white-collar criminals).

As I was preparing to write this article, I was pleasantly surprised after a long time. I was checking out the work of Matthew Robinson, the famous criminologist, and he said something that blew my mind. When does something become a crime? It’s a simple question, now think for a second. I loved the way Matthew explained this. Something becomes a crime when there’s a law against it; otherwise, it’s not a crime even if we all think it’s wrong.

But we all know how competent our lawmakers are. They are a bunch of old fossils that belong in a museum but ended up in parliaments, white houses and courts. Most legal systems across the world are still based on archaic laws meant for a day and age that’s long past.

But there are a lot of contradictions with our legal system. For example:

  1. Selling marijuana is mostly illegal, but tobacco is legal. Tobacco kills over 13.5 lakh in India and nearly, 500,000 Americans. Marijuana, barely 5-10 people 🙄

  2. If you rob a bank, you go to jail. But if the banks rob you, the CEO get a bonus. Not a single bank CEO was jailed after the 2008 crisis🤑

  3. If you sell a scammy unregistered financial product, you go to jail. But if an insurance company sells a scammy policy, it’s legal and comes with the government’s blessing in the case of LIC👏

  4. If you don't perform at your job, you'll be fired. If a fund manager underperforms a benchmark for a decade, he gets a raise and a chance to be on magazine covers👌

  5. If you take money from others, it’s stealing. If a mutual fund continues to take money from investors while failing to deliver performance it’s called fund management🤯

  6. If you take money from a company, it’s theft, if a company steals money and time from you by underpaying, it’s called cost control and margin expansion➿

So what’s legal and illegal comes down to some stupid laws written by old people who should be watching Saas Bahu serials in a retirement home. Now coming to the point, you as an income redistributor shouldn’t be bothering about laws. They’re stupid. They might call you a fraudster, a scamster or a con, so be it. You’ll be making money, while the people assigning labels wallow in poverty. They can go suck a lemon.

Moreover, as Matthew Robinson again points out, income redistributors (scammers) are a huge part of the economy. Income redistribution (scamming, defrauding, conning) employs millions of people around the world. These people spend their hard-earned money and grease the wheels of our economy. Not just direct employment, income redistributors also create indirect employment. To vilify and harass honest, hardworking income redistributors, millions of cops, agents, and judges are employed. Income redistributors (scamsters) have done more for the economy than anyone else.

So you don’t have to rely on traditional definitions of right and wrong, they’re wrong. Gordon Gekko said it best:

The golden age of income redistribution

For income redistributors today, the world is their oyster. It’s a golden age of income redistribution (scamming, conning, and defrauding). The opportunities to endless riches are boundless. In life, you have two choices:

  1. You can work all your life and comply with laws written by old people and live a pointless life.

  2. Or realize that just because someone says something is illegal, doesn’t mean it’s true.

If you’re the number one kind, have fun staying poor. If you agree with number two, you’re an aspiring income redistributor, then here are all the ways to be rich.

State of play

So why is this the golden age of scams and frauds? I don’t condone killing people and violence, so just to be clear, I am only talking about white-collar crime. If you like cutting and stabbing people like vegetables, you’re in the wrong place.

The term “white-collar crime” refers to financially motivated, nonviolent crime committed by individuals, businesses and government professionals.[1] It was first defined by the sociologist Edwin Sutherland in 1939 as “a crime committed by a person of respectability and high social status in the course of their occupation”.[2] Typical white-collar crimes could include wage theft, fraud, bribery, Ponzi schemes, insider trading, labor racketeering, embezzlement, cybercrime, copyright infringement, money laundering, identity theft, and forgery.[3] White-collar crime overlaps with corporate crime.

Wikipedia

Globally, white-collar crime is hitting a new high every day. If there was a derivative contract on white-collar crime, I’d be permanently long. These are the most common income redistribution schemes perpetrated according to PricewaterhouseCoopers (PWC), which ironically is crazy good at white-collar crime. PWC has been a loyal friend to fellow income redistributors and has helped cover up several white-collar crime episodes like tax-evasion, money laundering, accounting frauds and so on:

It’s tough to tally the damage of white-collar crime given that most of it goes unreported or unidentified, but suffice to say, it’s high. Most estimates put this number between $300 billion and well over $3 trillion. The good thing for all aspiring income redistributors is that while the white-collar crime rate has gone up, regulators’ budgets have fallen or remained flat. They can’t catch you, even if they want to. It’s like shooting fish in a barrel. I’ve always wondered why someone would do that though🤔

Republican lawmakers cut the budget of the Internal Revenue Service so sharply that it had the same number of special agents in 2017 as it had half a century earlier, even though the national population has grown by two-thirds.

New Yorker

While income redistributors have become smarter, the regulators have remained in the dark ages, partly because they can’t afford the best talent and technology.

So why is white-collar crime such a lucrative opportunity? Ok, try remembering the last ten big crime incidents you’d have read or heard about. Most likely, they’ll be murders, kidnappings, cults, shootings, and other violent crimes. Rarely do most people bother about white-collar crime. It isn’t sexy enough to grab the attention of most people. A stabbing vs insider trading scandal, the stabbing will be pretty much always be more memorable.

So, what does this mean for us income redistributors (scammers)? As I said, the opportunities are boundless. Let’s unpack a few opportunities.

Insider trading

Meet Jose Luis Casero Sanchez. He’s one of us. He’s an income redistributor. Jose is a dumbass. You might have heard his name in the news recently, he got caught for insider trading. It was amateur hour. Jose was a compliance analyst at Goldman Sachs.

According to the SEC’s complaint, filed in the United States District Court for the Southern District of New York, Sanchez had broad access to highly sensitive information regarding mergers and other transactions in which his firm was involved, in connection with his work as a compliance analyst. Sanchez had access to this information so that he could assist the firm’s efforts to ensure that employees kept the information confidential and did not engage in insider trading. However, between September 2020 and May 2021, Sanchez allegedly abused that position of trust by trading on at least 45 events involving the investment bank’s clients based on the investment bank’s material, nonpublic information. To avoid detection, Sanchez allegedly traded in multiple U.S.-based brokerage accounts held in the name of one of his parents—Jose Luis Casero Abellan and Maria Isabel Sanchez Gonzalez —and, in most instances, also refrained from placing large trades and made only modest profits. The complaint alleges that Sanchez generated more than $471,000 in ill-gotten gains during the course of the scheme.

SEC

As part of his job, Jose had access to non-public price-sensitive information about all the deals Goldman was involved in, such as M&A, IPOs, financing deals etc. And being the genius that Jose is, he decided to use this information and take trades in his parent’s account. What an idiot. The least could’ve done is trade in the account of his ex-girlfriend’s second cousin’s account. I had even written a short guide on how to do insider trading the right way.

Now, if you hear such stories, you’ll think that insider trading is a risky way to redistribute income (scam), it’s quite the opposite. It’s one of the easiest ways to make money because securities regulators like SEBI and the SEC are terrible at it. SEBI, in most years, has taken up only 10-20 insider trading cases. They can’t investigate everything. They usually pick the cases where they can make the maximum noise and make a statement that can deter others. Moreover, proving insider trading is nightmarishly hard – Blockchain solves this by the way.

It’s the same with the SEC, insider trading cases have dropped to the lowest since 1996.

Given that regulators typically go for the biggest cases where they can make a statement, the odds of you getting caught are infinitesimally low. Put another way, it’s incredibly hard to get caught doing insider trading. Let’s look at this another way. How much insider trading does happen in the markets? This paper found insider trading is at least four times more than the number of successful convictions:

We estimate that the actual prevalence of illegal insider trading is at least four times greater than the number of prosecutions. Using novel structural estimation methods that explicitly account for the incomplete and non-random detection and hand-collected data of all US prosecuted insider trading cases, we estimate that insider trading occurs in one in five mergers and acquisition events and in one in 20 earnings announcements. Key drivers of the decision to engage in illegal insider trading include stock liquidity, the value of the inside information, and the number of people in possession of the information. Detection and prosecution are more likely when there are abnormal trading patterns and more regulatory resourcing.

Vinay Patel & Tālis J. Putniņš

Here’s another startling fact. SEC oversees over $100 trillion worth of securities with just 4500+ employees. Of course, more employees doesn’t automatically equal better enforcement, but it helps. To do this It has a budget smaller than the marketing budgets of some companies. OMG! LOL! LMAO!😂😆🤣

Regulation-friendly Democrats have the upper hand in Congress but some people are queasy about a big expansion of the sec’s authority, given its patchy record: think of all the scandals, from Enron to Bernie Madoff, unearthed not by the regulator but by outside sleuths. Mr Gensler also needs more money. At $2bn, his budget is smaller than JPMorgan Chase’s annual spending on marketing.

Economist

The cost of street crime in the US, according to the FBI, is $15 billion. While the crime rate has fallen, police budgets have dramatically ballooned.

Over the past four decades, the cost of policing in the U.S. has almost tripled, from $42.3 billion in 1977 to $114.5 billion in 2017, according to an analysis of U.S. Census Bureau data conducted by the Urban Institute on behalf of Bloomberg Businessweek.

Violent crime and property crime have fallen significantly since the early 1990s, according to U.S. Bureau of Justice Statistics data.

Bloomberg

But while white-collar crime has dramatically increased, the budgets of the agencies overseeing them have shrunk. This is good news for us.

It’s only insider trading when you do it!

Like idiots, we often expect our elected officials, lawmakers, and men in positions of power and authority to have at least half a shred of integrity, not a full shred, but half. But they consistently manage to disappoint us. God forbid that your compliance officer buddy should share an insider trading tip, and you make some money, SEBI, SEC will swoop down on you like the wrath of God. But if the officials do it, nobody cares.

Just last week, two Federal Reserve officials resigned after WSJ broke the story that they had made a series of trades that look suspiciously like insider trading. Robert Kaplan, the president of the Dallas Fed, bought and sold several stocks like Alibaba, GE, and most importantly, a floating rate ETF – an instrument that is most sensitive to statements from the Federal Reserve. He can literally move the prices of a floating rate fund just by opening his mouth. Eric Rosengren, the head of the Boston Fed, traded REITs. This same dude had made comments about the US housing market.

What’s such activity called, I’m unable to recall. It’s called insider…something. Damn it!

Richard Clarida, the vice-chairman of the Federal Reserve, sold bond funds and bought stock funds just before Fed chair Jerome Powell announced policy measures at the depths of the COVID-19 crisis. Which idiot said market timing doesn’t work?

Nancy Pelosi, senator and the speaker of the House of Representatives, was crowned as the meme queen after her husband made over $5 million on Google call options. This was just before a committee voted on a new antitrust bill. An event that directly affects Google.

What’s legal and illegal is a matter of opinion, which is why the suits and old wrinkled white people call honest income redistribution a scam and fraud.

JP Morgan famously manipulated precious metal prices for years. Nobody went to jail. It just paid a $920 million fine, which is 3/4th of a drop in the bucket for the bank and continued manipulating other markets. If you bought a stock based on an insider tip, your ass would be in Guantanamo Bay before you can say, “I should’ve bought an index fund instead”.

Not even judges are immune. A recent WSJ investigation found serious conflicts of interest. Judges oversaw cases where they held the stocks of companies involved in the cases. I get it, this is a brilliant way to ensure stonks only go up, but why do these old geezers have to pretend to be honest when they are one of us? They are income redistributors (scamsters).

More than 130 federal judges have violated U.S. law and judicial ethics by overseeing court cases involving companies in which they or their family owned stock.

A Wall Street Journal investigation found that judges have improperly failed to disqualify themselves from 685 court cases around the nation since 2010. The jurists were appointed by nearly every president from Lyndon Johnson to Donald Trump.

About two-thirds of federal district judges disclosed holdings of individual stocks, and nearly one of every five who did heard at least one case involving those stocks

WSJ

Adventures in cryptoland

Front-running

The world of crypto is like a candy store, you can take whatever candy you want for free, there are no candy cops. The crypto world has rapidly recreated the traditional financial system, including the scams, cons, and frauds. The moneymaking potential is unlimited. It’s a bukkake of income redistribution opportunities.

You can make money in millions of ways, from front running, insider trading, and stealing from rich crypto investors. Take the case of Nate Chastain, he was the head of product at Opensea, one of the largest NFT marketplaces. Nate was too smart for his own good or too stupid. Nate was engaged in what is typically called front-running in the normal human world. I don’t know what the fuck they call it in the decentralized land of freedom and liberty.

Anyway, Nate was buying NFTs he knew were going to be displayed on the homepage of NFT. This is like an employee at a mutual fund buying shares that a fund would buy in advance and then later sell them at a profit. If you’re wondering, isn’t crypto supposed to be secret, anonymous and all that? Not really. Given that everything on the blockchain is public, you can figure things out if you’re really smart.

Shill it like there’s no tomorrow

I’ve said this before, and I’ll say it again, most people are idiots, and they’ll believe anything. Take the case of Kim Kardashian, err… I’m sorry I don’t know what she is, I mean the qualification. She was recently shilling some shitcoin called Ethereum Max on Instagram, where she has 250 million+ followers.

This was enough for the head of the FCA (UK SEBI) to be concerned:

“Of course, I can’t say whether this particular token is a scam,” Randell said. “But social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation. Some influencers promote coins that turn out simply not to exist at all.”

Here’s how this shitcoin has performed. Kim, I your big big fan become. You’re a brilliant pumper and dumper! Two brilliant dumps, Kanye and Ethereum max. I want your autograph!

Here’s the best part about shilling these coins, nobody is going to care. Who will the investors go and complain to? Crypto is full of freedom, remember? That means free from investor protection too. This is happening in India too. Celebrities like Anupam Kher, Radhika Apte, and Manoj Bajpayee have been heavily promoting various crypto platforms.

I mean, you have to be a real fucking idiot to buy crypto after listening to Anupam Kher, but hey, weirder things have happened in this world. If you are even someone with a half-decent following today, there’s plenty of money to be made by pumping and dumping shitcoins like Kim Kardashian. Given the mania in crypto and the wonderful human tendency to be unbelievably stupid, pumping and dumping shitcoins has never been easier.

I’ll repeat, crypto is recreating every single scam that we see in the traditional finance world. They’re not even leaving the kids alone. Several influencers who collectively have millions of followers allegedly unknowingly pumped a scammy coin called Save The Kids (KIDS): 

Save the Kids was billed as a Bep-20 token ‘redistributing wealth’ to both hodlers and charities via the Binance Charity Wallet (‘hodlers’ is a term with an intended typo used to describe those that hold on to a particular token rather than sell it).

Once the influencers had promoted this to their millions of followers, who began buying in, several of them then ‘pumped and dumped’, i.e. sold large amounts of the token in order to make money from it. This crashed the value of the $KIDS token from $0.0029 to $0.0012 in about a week, leaving many who bought in with a worthless crypto.

Espots News UK

People will buy anything, even if it’s named SCAMCOIN

Other financial frauds

If you are willing to do some hard work and have more resources or are rich, other income redistributions like accounting frauds, tax evasion are all evergreen opportunities. Sure, you’ll hear about the Satyam’s, PNB scams, and Enron’s. But every Satyam and Enron, 100s of mega scandals never see the light of the day. Even if you get caught, it’s not a big deal. For all the fuss about Enron, here’s what happened to the people who got arrested, remember it was a $70+ billion scandal:

The rest of the FBI’s victory has crumbled under the same blitzkrieg of high-priced lawyering. The Supreme Court overturned Arthur Andersen’s conviction in 2005. The convictions of three of the Merrill Lynch bankers were vacated after they convinced an appeals court that they were merely trying to “solidify business relationships” rather than acting for personal gain. In the end, just 18 people served prison sentences (by comparison, more than 500 served time for the savings and loan crisis of the 1980s and early 1990s). Fourteen of them served fewer than four years. Andrew Fastow, the mastermind of Enron’s network of shell companies, now makes his living lecturing business school students and fraud investigators about how he did it.

Huff Post

Meet Lee Jae-Yong, the heir to the Samsung empire. Ordinary people, when they want something done, bribe the cops or some officials. Lee is special, he didn’t want to waste time. He directly bribed Park Guen-Hye, the former president of South Korea. The bribe was in return for support for a merger that would lead to him becoming the boss of Samsung. Both got caught and were jailed. But he was released on parole in August. Rich people don’t do jail!

Let’s look at money laundering. It has a huge addressable market, the margins are high and there’s a real need for money laundering. It’s the perfect idea for an income redistribution startup (Scam). Ahem…Tiger Global.

HSBC helped Mexican Drug cartels launder over $800 million. After it got caught, it agreed to pay a fine of $1.9bn, and nobody went to jail. The Estonian branch of Danske Bank was responsible for over $200 billion in suspicious transactions, mostly money laundering by Russians, nobody has yet been jailed. It will just pay a fine and move on with more money laundering. Typically criminals hate waiting. Even there, customer satisfaction is important.

Meet Ronald Pol. Ronald spends his time studying the effectiveness of Anti-Money Laundering laws (AML). Banks and governments spend billions on AML compliance and manpower every year. AML is such an Orwellian nightmare that big banks like JP Murugan, sorry JP Morgan, employ thousands of employees just for AML compliance. Here’s how useful that has been:

Despite trillions of dollars poured into the global 30-year “war” against money laundering, the anti-money laundering movement remains unable to show policy success.

A worldwide policy paradigm enforcing complex anti-money laundering laws gives the comfort of activity and feeling of security but does not make us safe from crime. Letting criminal enterprises retain up to 99.95 percent of criminal proceeds, the modern anti-money laundering experiment unwittingly enables, protects and supports terrorists, drug, human, arms and wildlife traffickers, sex and labor exploiters, and corrupt officials, fraudsters and tax evaders on a global scale. 

Even in India, just in the last 3-4 years, we’ve had the IL&FS scam, the Punjab National Bank scam, the DHFL scam, Karvy scam, Videocon scam, among others. The collective damage runs into lakhs of crores. Except for a few arrests, everybody is chilling. In all likelihood, these cases will be tied up in courts and will continue for 273 years.

Jesse Eisinger is a Pulitzer winning journalist and the author of the bestseller The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives. He’s written in excruciating detail about how there’s never been a better time to be a white-collar criminal. He has painstakingly chronicled the history that led to the hollowing out of regulators like the DOJ and SEC. As he says, today everybody settles, nobody goes to jail. That’s because regulators have become toothless:

He traces the tendency of regulators to settle than jail people back to the Enron scandal:

Really what happened was there was a backlash to those Enron-era prosecutions, especially the prosecution of this firm, the accounting firm Arthur Andersen, which was the handmaiden to Enron’s fraud. And there’s a corporate backlash, and there’s a change in the courts, and the Department of Justice started losing some cases. They got very skittish about this, they lost tools, and they were kind of stripped of the will and ability, as I argue, to really bring individual investigations. So instead, they switched to settling with corporations for money, and when you settle for corporations for money, you kind of lose. They didn’t realize this, but the unintended consequence was that they lost the skillset to investigate individual executives.

Perhaps the most recent case that’s emblematic of this tendency is the Purdue Pharma case. Purdue Pharma was the largest manufacturer of prescription opioids, namely OxyContin, prescribed for pain management. The main ingredient in the drug belongs to the same class of opioids as heroin. For decades, Purdue spent billions to market the drug aggressively and deceive the public about how addictive it was.

Purdue Pharma and other companies promoted their opioid products heavily. They lobbied lawmakers, sponsored continuing medical-education courses, funded professional and patient organizations and sent representatives to visit individual doctors. During all of these activities, they emphasized the safety, efficacy and low potential for addiction of prescription opioids.

Nature

This single-handedly contributed to the opioid crisis in the United States, where more than 500,000 people have died from an opioid overdose. In the last year alone, more than 52,000 people have died:

Purdue was sued and it chose to settle and also filed for bankruptcy. It’s unclear just how much Purdue will end up paying, it might be anywhere between $4-10 billion. But the Sackler family, which owns Purdue, is still worth over a cool $10 billion, and their personal wealth is immune from lawsuits.

You have two choices in life

Be an honest law-abiding idiot

Or

Redistribute income from the rich people. Do your part in solving income inequality!

There’s never been a better time in history to be a white-collar criminal. it’s the golden age of fraud!


Shit you ain’t gonna read and I won’t stop sharing

Personal finance, investing and markets

  1. Which asset allocation is right for you?

  2. The Broken Clock

  3. What is Your Investment Edge?

  4. Momentum without the Crash

  5. Hedge funds: the end of an era?

  6. Have retail investors changed markets?

  7. Related read to the piece above: The Most Dangerous Stock Market Ever

  8. SPAC full of shit

  9. Narrative Distillation

  10. Giving value a pass, BAAP investors hunt for quality picks to add to their portfolios

  11. Who’s Helping the Fund Managers Manage?

  12. The Debt Ceiling, Expectations, web3 and the Energy Crisis

  13. Atoms vs Bits, Blackstone, What China Wants, How Crypto Really Works….

  14. No Time to Die: China Banks Edition

Voodoo economics

  1. The opposite of enough

  2. What to expect when you’re expecting inflation?

  3. The workers who keep global supply chains moving are warning of a ‘system collapse’

Techmology and assorted nonsense

  1. Resistance in an Algorithmic Society

  2. There’s a Multibillion-Dollar Market for Your Phone’s Location Data

  3. How mental health became a social media minefield

Crypto

  1. The Internet of Grift

  2. NFT Projects are just MLMs for Tech Elites

  3. Here’s everything going wrong at Binance, the world’s biggest crypto exchange

  4. Stablecoins, Stability, and Financial Inclusion

  5. The topic of cryptoeconomics is quite interesting. Check out the linked paper at the beginning of the post first and then Vitalik’s response.


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