Written By
Carlos M. Sera, MBA
Published On
September 2, 2015

This tale focuses on a common investment pitfall. I call it stealing. It was a normal scam since it appealed to the victim’s common sense and trust.

I was asked by a friend to review his girlfriend’s portfolio. Her name was Pam. He said it looked fishy but he wasn’t sure. He was particularly concerned with a limited partnership that she owned. Upon inspection I saw that Pam’s portfolio was comprised of two accounts. In one she had about $25,000 and in the other she had $10,000. The $25,000 portfolio was with a small broker-dealer that I did not recognize. The $10,000 portfolio was with a different broker-dealer that I also did not recognize. I was familiar with the investments that she held in her larger portfolio. They were all mutual funds that paid the sales driven advisor or SAD or broker a big commission and I just assumed that he had made his initial commission and like so many others had simply disappeared. Pam had not heard from him in over 2 years. I was unfamiliar with the investment in the smaller portfolio. This is where the limited partnership resided and it had a stated value of $10,000.

I asked to see the limited partnership document and I suspected a problem. The limited partnership document had as its stated objective the investment in precious gems. I had never seen a precious gems limited partnership and was curious to see the terms, the risks, the expected returns, etc. Unfortunately, I couldn’t find anything out about it. No matter how I tried, it didn’t seem to exist. I called the broker’s office and got no answer. I called the broker-dealer and got no answer. I called the broker dealer of the larger portfolio and was told that the selling broker had not worked for them in years.

What happened? There was no partnership at all. It was a fake. The selling broker had fabricated a limited partnership as well as a broker dealer and was sending annual statements to Pam showing her the value of her portfolio. When he stopped sending reports is when Pam suspected something was amiss. Methods to part a fool from their money have been around since the inception of time and this one was no different. It seems the broker had convinced Pam several years before that she should invest $10,000 into the precious gem fund since it would provide her with diversification. What a believable story is all I could think to myself. Apparently, the broker convinced her that every portfolio should be invested in stocks, bonds, real estate and precious gems. She bought it hook, line and sinker. Read An Asset Allocation Tale to get a good understanding of the types of assets that should be included in a diversified portfolio. Here’s a hint, I don’t classify real estate, gems or commodities in the portfolios I develop. You shouldn’t either.

I learned three important lessons from this encounter. The first was I was surprised that an individual that had the wherewithal to conceive of such an elaborate scam would be willing to settle for such a small amount to steal. I assumed that he went on to bigger and better scams and that this was just a starter. The second was just how easy it was to convince someone to invest in a diversified portfolio just by including the buzzword diversification into the phraseology. Lastly, I learned to avoid investments that I can’t track on an exchange or at least have some certainty of their existence. To quote Will Rodgers, “It’s not the return on my money I’m worried about, it’s the return of my money.”

Carlos M. Sera, MBA

Carlos M. Sera, MBA

Founder, Sera Capital
Carlos Sera is a wealth advisor professional, speaker on financial and investment planning, author of Financial Tales, registered investment advisor representative, and first-generation Cuban-American with Spanish fluency. Carlos has an MBA from the University of Rochester in Finance and Applied Economics, and a BA degree from Johns Hopkins University in Natural Science.

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