
Banker confessed to running a Ponzi scheme, but was he hiding a bigger crime? - zeveb
https://www.bloomberg.com/news/features/2017-12-18/he-stole-100-million-from-his-clients-now-he-s-living-in-luxury-on-the-c-te-d-azur
======
itsmemattchung
I must admit that, before reading this article, I made an quick (and wrong)
assumption about the clients who collectively lost $100M. I assumed they were
naive folks who blindly handed over the money. But what really boggles my mind
is the amount of money they were dealing with:

\- Canadian engineers who had recently sold a water-treatment company to
General Electric Co. for $656 million.

\- A few months later, Reissfelder, a laid-back German coder living near San
Francisco, sold his travel startup to Expedia for $85 million

I doubt I could ever really trust anyone enough for me to hand over that
amount of money and I doubt I could express the level of anger when all that
money vanishes into thin air.

~~~
PantaloonFlames
According to the text of the article, the Benedeks lost $20MM and Reissfelder
lost $12MM.

The sums you quote ($656MM and $85MM) are what they sold their companies for,
respectively; maybe those numbers are from public records. But, the primary
sellers didn't necessarily retain all that money. There were other
stakeholders, legal people to pay, and so on.

Also it says the Benedeks bought another German company after they sold their
own company. So I guess that cost them a few million, too.

Your point is still valid - these people handed over substantial sums, between
$10MM and $20MM each to a custom investment house.

What amazes me is...where they thought the money was coming from, for the
helicopters and private jets.

If a single client justifies a private jet... well, for a going business, the
money for the jet (whether chartered or owned) is coming out of that single
client. $40k is 0.4% of $10MM. That's a pretty high cost for one meeting.

If the company treats all of its clients this way - each client has to pay
that 0.4%. If the company treats only one its clients this way, or only a few
of its clients this way, then it's a shady company. Either way, it smells, and
it seems obvious from a distance. It's true that the article is the source of
the $40k number for the jet, but fees for private jets (chartered or not) are
not hard to estimate. Just read the economist, you can see the $$ in the ads.

I don't have $10MM to invest, but the unsustainable overhead seems obvious to
me. It would be reckless to ignore it.

If the investment is $1B... a private jet seems required. $40k against that is
tiny. I would EXPECT a private jet if I were investing a billion dollars. But
for $10MM?

~~~
athenot
The generalization of that is when you see high customer acquisition costs
relative to what you think a vendor might earn from you, ask yourself why.

------
crescentfresh
Additional details, victims: [http://swiss-east-affairs.ch/blog/a-strange-
bank-robbery](http://swiss-east-affairs.ch/blog/a-strange-bank-robbery)

> Gaglio’s former partner, Jean-François de Clermont-Tonnerre, is back in
> business as an asset manager, together with his wife. They have put together
> a network of firms extending from Malta via Luxembourg to Geneva.

------
keithpeter
Dr Galli seems like an interesting character. One wonders how you get started
in that line of work. That database of his strikes me as being of interest to
quite a few people.

Dr Galli has a Web presence..

[http://www.cii2.org/index.php?option=com_community&view=prof...](http://www.cii2.org/index.php?option=com_community&view=profile&userid=20429845)

[http://swiss-east-affairs.ch/](http://swiss-east-affairs.ch/)

~~~
emmelaich
And he has more articles on Gaglio's victims, e.g. [http://swiss-east-
affairs.ch/blog/a-strange-bank-robbery](http://swiss-east-
affairs.ch/blog/a-strange-bank-robbery)

------
ringaroundthetx
The interesting thing about this is that legitimate money managers act like
this too. These are completely binary propositions: either they make you money
or they don't. No slew of licenses and regulatory ID number checks will help
this.

> He arranged for tours of properties in Geneva and Monaco and once insisted
> Diana travel on what he said was his company’s private jet. (Hottinger had
> no plane; it was chartered especially for the occasion, for about $40,000.)
> “He got us by being relentlessly helpful,” Diana, 59, says. “We’re
> Francophiles,” adds Andrew, 74. “We both speak French, we love French
> food—so maybe we were vulnerable. We were impressed.”

His "exploitation" of cross border regulators to evade a harsher conviction
and restitution isn't really that notable, in my opinion (albeit clever if he
was avoiding money laundering charges as the article suggests). Many
legitimate funds have to operate with the same flexibility and exemptions for
other reasons, and ultimately you either create value for your investors or
you don't.

The real deterrent is that people are more concerned about their kneecaps and
families, especially from any gangsters or politicians they have in the fund.

If that deterrent is gone then you'll see more of this.

~~~
walshemj
don't you get banned for life from the finance industry for this sort of scam

~~~
ringaroundthetx
First, the regulatory/court sanction will be in one country, or whichever ones
bother. In the US for example, these bans are a couple years long.

Second, thats just investment banks and licences in that country and possibly
forming your own fund, in that country or with that countrys citizens.

Third, the man was managing other peoples money independently, without working
for an investment bank, so it doesnt matter what the broad industry thinks.

Fourth, and if you need a license then maybe it matters, but again not in
every country.

Fifth, if you are perceived as making good returns and your potential
investors arent making good returns, then they want to invest with you.

The end.

------
nebgawker
For the love of money is the root of all evil.

~~~
mml
From NIV anyway: "For the love of money is a root of all _kinds_ of evil."

Timothy 6:10. Pet peeve when that word is dropped. Money isn't necessarily
behind _everything_.

~~~
PantaloonFlames
But that's the problem in reading an English translation of a 2000-yr old
text. Too many handlers have intervened, one must assume the purity of the
original has been compromised.

~~~
nitrogen
_...one must assume the purity of the original has been compromised._

One must also assume the original had any purity to be compromised.

------
dreamdu5t
“If there are no consequences, then the world is seriously broken.“

The world is broken when people make 100’s of millions of dollars and spend it
on villas, expensive art, dining, etc while others work their asses off just
to scrape by on a meager existence.

Boo fucking hoo they lost millions to a scammer when that doesn’t even near
bankrupt them. Imagine losing millions and just going on living the same
lifestyle...

------
JohnStrange
People loose millions every year without consequences. It's only considered a
crime under certain circumstances and if you don't fulfill the general
expectations in terms of behavior, dress codes, legal structures, etc. Maybe
this guy just made the mistake of using a way of loosing the money that made
him personally liable. He used the wrong form of investment and legal
structure.

If he had taken a better lawyer and fund manager, this wouldn't have happened.

~~~
valuearb
If you tell someone you will invest their money, but your investments lose
money for them, that's not a crime.

If you tell someone you will invest their money, but you spend it on yourself,
that's a crime.

Can you see the difference?

~~~
Radim
The difference is exactly as OP says: better legal structure, lawyers and
accountants. Achieving the same effect by more convoluted (safer) means.

Or what’s your point?

~~~
valuearb
Right, so you think investing is the same as theft.

That would make Warren Buffett is the biggest thief of all and has apparently
stolen $487B from investors. Of course he hasn't spent their money, it's
actually invested in hundreds of companies and investors can get their money
back any time they want just by calling their broker.

But in your mind, it's the same as if he had stolen it. Because of "lawyers,
accountants, and stuff".

~~~
zafka
A much simpler case is the investment house my mother used shortly after my
Father died. While they did not out right steal, they charged very high fees
and tried to convince her to move her investments around. Now that she
understands what she got into, it will still cost her more than it should to
withdraw her money. She trusted them as the salesmen was from her church, and
the company had "lutheran" in it's name.

~~~
valuearb
Charging excessive fees and poorly serving client needs isn't theft.

Saying the Ponzi scheme guy is no different than a sleazy stock broker is
massively trivializing his crimes. Sure, what happened to your parents is
wrong, but it's far from what he did to his victims.

