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How to Smell a Rat: The Five Signs of Financial Fraud
Author: Ken Fisher with Lara Hoffmans
Publisher: John Wiley & Sons, Inc. (2009)
ISBN 978-0-470-52653-8
Author Ken Fisher was motivated to write this book by the discovery of some "big, ugly, heinous financial frauds" in 2008 and early 2009. Fisher is the author of the financial investment column "Portfolio Strategy" in Forbes magazine and the founder, CEO and CIO of Fisher Investments, an independent global money management firm. He has published five books including the New York Times bestsellers, The Only Three Questions That Count and The Ten Roads to Riches.
His coauthor, Lara Hoffmans, is a content manager at Fisher Investments and contributing editor of MarketMinder. com. She also coauthored with Ken Fisher The Only Three Questions That Count and The Ten Roads to Riches.
As I read this book, I concluded that Fisher is a superb story-teller. He is very clear about his five signs of financial fraud. Each sign is supported with historical accounts of how innocent people were scammed by financial advisers they knew and trusted. It is unfortunate that many of these situations occurred very recently. The caveat "buyer beware" is relevant to the investment world as much as it is to shopping for any new product or service.
First Sign of Financial Fraud
Your financial adviser also has custody of your assets. Fisher explains that the financial adviser who has custody of your investments can take money out the back door any time he or she wants. In Fisher's words, a rat can inflate asset values, issue false statements, shift money around, or steal it entirely. As examples, Fisher cites Bernie Madoff and R. Allen Stanford. He notes that Madoff claimed to be exclusive and that most of his clients were big (think of hedge funds, billionaires, and banks), but he also accepted tiny investors such as retired school teachers. Fisher notes that Stanford was a repeat Forbes 400 member, but the U.S. Securities and Exchange Commission (SEC) charged that the $8 billion he managed was a Ponzi scheme.
To avoid fraud, you should insist...