Devoted to understanding the basics and fundamentals of investing

I have some friends in Louisiana.  In the last two weeks they have sent me two investments to look at to get my opinion.  They both were frauds.  I'd like to talk a bit about them to help you avoid getting scammed.

These scams were just a little more sophisticated than what I normally see.  Each time someone turns a scam artist down and gives a reason, they can fix that part of the scam and make it seem a little more legitimate.   This time both scams involved actual bank products.  They also offered to confirm the instruments using the proper code for that instrument in the SWIFT system.  SWIFT is a communications network using standardized formatting among financial institutions.  These were nice touches, but didn't cover up the actual fraud.

The first rule in my business is only do business with people you trust.  If you don't trust someone, it doesn't matter how attractive the deal is, you don't do it.  Scam artist know this and try to get a trustworthy person to present the deal.  My friends in Louisiana had very trusted people show the deals to them.  They in turn showed it to me.  The crooks were a few steps removed.  That way, my friends focused on the instrument instead of the person presenting the deal. So the first rule is, know and get impeccable references on everybody in the deal.  If you can't, don't do the deal.  Your bank can request a credit referral from your counterparty's bank.  Legitimate deal makers will let you do that.  Bank to bank is much more secure than you calling someone you don't know for information. 

There were two people in the first deal and one in the second that my friends knew nothing about.  When they asked, the crooks tried to get them to focus back on the instrument.  When I insisted they pursue the details on the people, the deal disappeared.

The second problem with the scams is that the amounts did not fit.  They were so large, that the person offering the deal did not need anyone else.  There was no reason for them to offer the deal to anyone.  Also, the amounts were so large that they amounted to betting the bank.  Banks diversify risks and would never issue instruments so large.  The deal did not fit with normal banking practices. 

So the second rule is, make sure the deal makes common sense.  Ask, why do they need me?  Why am I being offered this deal?  What can I bring to them that they don't already have or should already have?

Third, the deals were too good.  The old rule my father taught me is still true, "If it seems too good to be true, it is."  Big deals are done at market rates.  Nobody pays you more than market nor do big securities ever go on sale.  Things always happen at the market rate.  Amounts in my world are large, but margins are not.

So, if it seems too good to be true, turn away and run for your life and keep your hand on your wallet.