Congressman gets swindled out of $18 million

Miscellaneous and Personal Stuff I Must Share
1

Hold on to your hats and read to the end, please.

Alan Grayson, the firebrand liberal from Florida known for some over-the-top rhetoric, has lost $18 million in a Ponzi scheme. Basically, he gave $9 million in stock to a company which promised to use it as collateral for loans. Customers would sign over the stock, instantly get about 90% of the stock value as cash, and then a few years later they would get the value of the stock back as the loan was repaid. When you think about it for more than five seconds, it is a classic get rich quick scheme: give us something now, we’ll return most of it quickly, and you’ll double your investment in just a couple years. How does this not sound like a scam?

Of course, it was a scam, because the company who took control of the stock portfolios signed over to them would immediately sell the stock, send about 90% of the value back to the victim, and the company would keep 10% for its own profit.

Makes Mr. Grayson look sort of foolish for buying in, doesn’t it? Well, there’s more to it than that.

The main problem was that the Ponzi scheme collapsed because… get this… Grayson was too good at picking stocks. The portfolio he handed over to the long-game grifters went up in value by 150%, turning his $9 million in stocks into $23 million in value. The fraudster knew there was no way to repay a portfolio with such substantial gains, and the whole thing began to collapse.

Wow, Mr. Grayson’s business acumen was the downfall of this whole thing. In my view, that kind of makes him look like a pretty smart (if flawed) individual.

But now the final twist: where do you suppose Grayson got a good chunk of this money that he lost in this scam? As an attorney, about seven years ago, he sued the living daylights out of Derivium Capital. This South Carolina company ran a Ponzi scheme. What kind of scheme was it? The company would take assets, sell them at face value, return 90% to the investors, keep the other 10%, and promise to return all the stock value after loans are repaid.

Wait, does that sound familiar? Yep, it’s pretty much the same scheme that Grayson just fell prey to!

**Well, at least Grayson the attorney sued the shit out of Dervium Capital for their scam, so justice was done and Grayson personally got $34 million out of the lawsuit. Looks to me like he was on the side of the angels in that lawsuit. **

P.S.: There’s one more super bonus twist. Grayson wasn’t just an attorney representing clients who got bilked out of money by Dervium Capital. He was the single largest investor in that company, which is why he got $34 million from the court.

All I can say is, Alan Grayson: What the fucking fuck?

Link, link.

2

A thief who was scammed b another thief. Cry me a river-this POC got what he deserved.

3

How is Grayson a thief?

4

I’m utterly stunned that he got taken in, considering his background, but it’s funny as hell that it was actually his financial savvy (other than, you know, this incident) that unmasked the whole thing.

ralph, reread the OP. He busted a Ponzi scheme previously; he didn’t start one.

5

He’s a politician. 'Nuff said. :wink:

6

If you read the second link closely, the Ponzi schemes had a secondary effect of promising its participants a shelter from capital gains taxes. Grayson said in testimony that he treated the transfer of stocks as a loan, rather than a sale, on the advice of the company’s advisers.

Now, it doesn’t seem like Grayson actually evaded capital gains taxes, and there’s no evidence I’m aware of that he intended to, principally because he seems to have bought and transferred the stock too quickly to accrue capital gains.

But aside from the major point that he participated in two virtually identical Ponzi schemes – seriously, WTF?? – in my opinion he was edging closer and closer to an ethical line.

7

Maybe he’s planning to sue the daylights out of this new company.

8

This completely redefines the term “stupid-smart”. Wow.

9

A few nits to pick:

It doesn’t seem like he actually lost all this much money, considering how much he invested to begin with. Frequently the way these losses are calculated is by treating the promised gains which don’t materialize as losses. So if a guy puts up $9M, gets back $10M, but is supposed to receive $28M under the (unrealistic) terms of the deal, he is treated as losing $18M, although he actually did OK.

You see the same sort of thing in stock market collapses as well. For example, people’s ostensible losses in the Enron collapse tended to be calculated based on the maximum amount the stock was worth rather than the individual’s purchase price, even though the whole reason it was considered a scheme was that the highs were considered artificial.

The media likes to play along with this since it makes the story sound better.

A lot like The Producers.

But I don’t know if the returns mean Grayson was too good at picking stocks. If you began such a scheme when the market was down, any reasonable portfolio might return outstanding returns and doom the scheme.

Is this correct? Just because he was awarded $34M doesn’t mean he collected $34M - the Ponzi schemers may not have had that much to give.

According to one of your links, Grayson made his money from a telecom firm he founded.

10

Fine, I took a little license in a few places, such as to say, “the courts gave $34 million to Grayson,” whereas you might have phrased it, “the courts issued a $34 million judgment to Grayson, but I would have to go digging through a jillion more websites to see how much of that judgment he collected, and whether those specifici proceeds were used to make another stupid investment in a second Ponzi scheme promising the same damn thing.”

Potato, pohtahto.

ETA: but more seriously, the second link shows why Grayson was “good at picking stocks.” When he was first played the fool, he invested the cash in Latin American companies, some of which tripled in value, and others tanked. The main reason he invested in such high-risk firms is that he genuinely believed that he has signed up for a “heads I win, tails you lose” scheme: if he used the cash to pick a winning stock, he got all the profit; if he picked a losing stock, his exposure was only 10% of what he invested. Overall, he appears to have hit big on a few stocks, during both instances, which I’d say qualifies for being a good stock picker.

11

Reading between the lines, it does appear ralph is substantially right. The reason people gave their money to Dervium Capital appears to have been to evade taxes. (Grayson denies this but one investigator says that they’ve checked over two hundred victims and all of them were using Dervium to evade taxes.) There’s no report that the victims were told this evasion was illegal; they were probably encouraged to think they were exploiting a legal loophole. But con men will tell you one of the easiest ways to rip off a mark is convince him the two of you are ripping off somebody else.

12

I believe the OP has the timeline wrong. According to this story, the sequence went like this:

2000 - 2005 Grayson invests in Derivium Capital’s Ponzi scheme.

2003 Grayson begins investing in a similar Ponzi scheme run by William Chapman.

circa 2007 - 2008 Both Ponzi schemes collapse.

In 2009, Grayson wins a $34 million judgment against Derivium Capital and its owners. I can’t find out if Grayson actually received any of that judgement. People suing Madoff only get pennies on the dollar.

2013 Grayson’s $18 million losses in the William Chapman scheme are revealed.

13

Yeah, that’s the first thing I thought of. If I read the OP correctly, he got took by a con early in his career, busted out the attorney at law costume and took them right back for a small fortune. Which he then invested in a suspiciously similar con.

That doesn’t sound stupid to me, that sounds like a Plan. A Plan with a Legal Precedent.

14

I said upfront it was picking a nit.

But FWIW, the point of the nit was in questioning whether the source of his millions was that first experience.

Makes sense. Because it provides a convincing explanation for the “too good to be true” profits being promised.

15

So it seems. That does make it clear that he invested in both Ponzi schemes concurrently, whereas other reporting made the second scheme look more recent.

But here’s where smart and stupid collide again:

16

I don’t see this in your second link, but if it’s true it seems to undermine your assertion. Rather than being a good stock picker, Grayson would then be just a guy who went with a high-risk-high-reward approach based on a belief that the risk was being absorbed by someone else. When if things happen to go well, this approach produces outsize rewards.

On another nitpicky note, I also see no evidence in the linked stories for your claim that Grayson as attorney represented fellow victims in the first scam, and the stories seem to indicate that the entire $34M was awarded to him in his capacity as victim.

17

You’re no fun at all. I’m not pitting the guy, and I’m not ringing him up on criminal charges. I’m just in wonderment of how someone, by all accounting being a very intelligent person, so firmly lodged himself in two examples of such shady dealings.

I haven’t even begun to expound on my even more poorly substantiated views on how PennyTalk, the product owned by the company that Grayson founded, must be a scam, too.

18

Sounds like a man who needs a lesson in pattern recognition.

19

Sorry, I’m not intending to criticize you either. But you cited a bunch of facts, so it’s worth noting that some of them do not appear to be accurate.

Considering that it’s since been established that the two investments were concurrent, it’s possible that Grayson thought he was mitigating the risk by diversifying.

But in general, a lot of smart people get taken in by scams. In the aftermath of these scams other people like to look at these people and snugly think that they would never be taken in by that kind of scam, and it would be obvious to them that it was all a scam. But that’s untested and has no real basis.

20

See page three of the second link. That page starts off with a discussion of how Grayson used intermediaries in the Cook Islands (a location known by the IRS to be a probable location of US tax evasion schemes) and how Grayson felt he had to invest the money overseas because IRS wouldn’t let him invest the money how he wanted in the US; then it goes into a discussion of how the IRS believes that the Ponzi schemes were actually illegal tax shelters; and then it goes into the exposure limit thing.

Grayson’s $34 million was part of a $270 million judgment for him and several other victims, that’s on the lower part of the page of my second cite. Alisa J. Roberts of Grayson Law Center PC represented the plaintiffs in related matters. Cite.

Just a question, I get that you’re all for accuracy in this thread – nothing wrong with that – but are you implying that Alan Grayson was more of an innocent party than I’m making him out to be?