Topic: Warning signs of financial fraud - page 2. (Read 2417 times)
It does seem fairly simple for Mt. Gox or Tradehill to back-date trades at the low and high for themselves.
A standard list of warning signs of financial fraud, as applied to Bitcoin exchanges.
- (1) Sales Appeal: The hook designed to lure you in is get rich quick without risk or hard work. Above market returns, guarantees, low or no risk, and no effort required are all hallmarks of investment fraud. Investment fraud intentionally appeals to the basic human emotions of fear, greed, and wanting something for nothing so that you will make an irrational decision. Be wary of any salesman who draws out your emotions as part of the sales process. Due diligence is how you remove the emotion and base your decision on facts.
- (2) Obfuscation and Misinformation: Fancy words and successful images are designed to win your trust by creating a façade of sophistication. Techno-babble is designed to intimidate you into not looking behind the facade. Multiple postings on the internet under various aliases are designed to create the appearance of many people involved. Professional images are designed to create trust. Always ask, "Where is the beef?" Never trust the façade, but instead look deeper to find real substance. Due diligence is how you look behind the veneer of obfuscation and misinformation to see if there is any real meat.
- (3) Unverifiable Claims: Secrets of the rich, technological breakthroughs, patent pending formulas, government conspiracy theories, and inside information are all examples of things that are either hard to verify or not verifiable at all. Never invest based on hollow words alone. Verify all statements and claims with independent third party information. Assume nothing is true until confirmed through due diligence.
- (4) Manipulative Sales Practices: Intimidation, inadequate disclosures, non-traditional payment choices, inadequate diversification or improper asset allocation, encouraging you to invest based on trust, or rushing you into a decision with high pressure sales tactics are all examples of manipulative investment sales practices that deviate from proven professional standards of conduct. Never rush a decision or invest based on emotion. Due diligence will slow the sales process sufficiently to offset manipulative practices.
- (5) Lack Of Transparency: All investment accounts should be registered separately in your name with an independent, third-party custodian, and all transactions in your investment accounts should be fully visible to you on a daily basis either through independent account statements or the custodian's web site. Avoid commingled, pooled funds where the manager has custody and possession and/or account activity statements are generated only by the manager and not by an independent third-party.
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