Scope of the Blog

As stated in a previous post, the scope of this blog will increase. I will no longer just post on corporate governance matters. My focus will now include posting on frauds and other shady actions. The main focus will be on frauds. Accordingly, I have cleaned up some of the older posts. To be sure, I will still post on corporate governance matters. Also, I hope to post more frequently. “Hope” is the key word in the previous sentence.

Back in 2009, I was lucky enough to hear Harry Markolpous speak at a CFA Society of Chicago Event. Of course, his talk focused on the Madoff fraud, including how he discovered it. However, by sheer luck, out of the approximately 300 attendees, I was one of about 10 people who were able to go out with him after the event for drinks. Of all places we ended up at Bennigans. I am not making this up. One of the other lucky 10 was the author of the wonderful blog Simleon Sense (http://www.simoleonsense.com). He can vouch for the crazy story. Harry was able to give us a lot of great insight. It was inspiring to hear from the man who discovered the world’s largest Ponzi scheme.

I spend much of my time in Micro-Cap land. The occurrence of fraud in Micro-Cap land is high. Probably my most painful investment was in Electronic Game Card, Inc., a small micro-cap stock. When I made the investment, the balance sheet looked great. It had $12 Million in cash and the whole company was selling for just above that amount.  Unfortunately, the $12 Million was in a subsidiary that everyone at the Company, including its auditors, failed to discover had been sold several years prior. I am not making this up. Read the second paragraph of the news release: http://www.sec.gov/Archives/edgar/data/1083036/000119983510000363/exhibit_99-1.htm. The SEC did charge them: http://www.sec.gov/news/press/2012/2012-223.htm. but that doesn’t really help me get back the money lost on the investment.

Another example of the fraud I have encountered is Keenan Hauke. I decided to meet with him because he came highly referred to me. He even agreed to give me advice on how to run a fund. After all, he had successfully started an investment advisory company that had been around for over 10 years.  He had a staff with great people working for him, including Scott Noble.  I think you may know where the story goes, but yes he was a fraud too. He ran a Ponzi scheme, which his employee Scott Noble uncovered and reported to the authorities. The point is that it’s difficult to catch frauds, even when you know the person.

In fact, Scott and I are in the very beginning stages of working on a book that highlights frauds and how to catch them. I plan to use this blog as a draft version for much of the material that will end up in the book.  So please feel free to point out any errors, or even typos. I hope to include a few guest posts from Scott too.