A recent newspaper article featured a woman who was mistakenly sent a check for over two million dollars. She cashed it and is now in a lot of trouble. It got me to wondering though: if something like that happened and you knew you only had a few days or at most a week to capitalize on it, what would be the shortest short-term investment you could make? Returning the principal when the mistake was found, and pocketing the interest?
I suspect the interest you earn could also be taken away from you.
You can pretty much bet on that. Ever hear the term “ill-gotten gains?” If you had no right to the money, you have no right to any profits made with that money.
I suspect there is no absolute answer because return tends to be the inverse of risk and so it depends on what what you would regard as an undue risk to take that you will lose the principal, in order to maximise return.
That would sound about right, because in depriving the rightful owner of their $2m, even for a matter of days, you would also be depriving them of the interest they could make on the money.
Buying a few kilos of coke with it should turn you a quick buck. 
The way I understand the law, you could not cash the check, hope to hold on to the money for a short time, and then return the funds and escape punishment. The act of cashing the check, IIRC, would constitute conversion, a crime like theft or embezzlement.
Presuming you were sent the money in error - i.e. a bank transfer gone wrong - would you be liable for the lost interest?
i.e. can the bank (or whoever) claim you should have invested the money to generate interest?
The OP is the plot of a number of caper movies and potboiler novels that have crossed my path in the last 30 years or so, the titles of which all escape me at the moment, but it goes something like this: Protagonist comes into possession of large sum of money (usually Mafia bagman’s briefcase, or failed bank robbery loot) and is faced with challenge of maximizing profits in a short period of time before the money will all have to be given back. Generally they make a beeline for Vegas and spend the weekend losing the money, which then leads to even more fascinating plot complications…
Just a thought.
At least under UK/Australian law, if you deliberately invested the money you’d be committing the tort of conversion, and the rightful owner would be entitled to the money back plus you’d have to account for any profits.
What is kind of interesting is to consider what would happen if you simply received a massive amount (say $20m) into your interest bearing account, by inadvertant transfer, and you didn’t notice for a few days and the rightful owner took a few days to figure out where the money went. If you handed the money back ASAP once you noticed it, you’d still have earned a tidy sum in interest in the meantime. Could you keep the interest?
It’s too long since I went to lawschool and I haven’t had to consider the issue since. I suspect that at least under UK/Aust. restitutionary principles you’d have to give the interest back but I can’t remember and can’t be bothered researching. Maybe someone else knows?
I assume you are limiting the question to “safe” investments. In that case, I would guess that a money market bank account is the best bet. In a month you might earn about $5k.
Although in theory you could be liable to return any interest you earned, I bet you could keep it if you handled the situation right. You just put the $2 million in a separate money market account, and when the rightful owner of the money shows up, you tell them “sure, of course I have the money, and I put it in a special account to protect the rightful owner. Just show me proof and I’ll write you a check for $2 million no problem. And as a reward for not being a jerk, how’s about you let me keep the interest?”
I bet most banks would let you keep the interest in that situation.
You’re a far more optomistic better than I am.
Personally, I think the best way to profit is to use the million sitting in your bank account to convince various places that you are, indeed rich. For instance, high-end houses for sale usually only allow people to tour them that have enough money to be serious bidders. Vegas comes to mind as a place that might toss some freebies to a provably wealthy person. See if you can test drive yachts or Lamborghinis, ask for free caviar samples, whatever.
Then when you have to give the money back, sell your story to a magazine or Hollywood.
Assuming it was a direct deposit and not something I could choose not to accept [let’s say my employer screws up my direct deposit], I’d just dump it in my money market account at the bank for safe-keeping, so I didn’t write a check against it.
If they ask for the money back, fine, it’s theirs. They might not bother asking for the interest, but I got no problem giving it to them if they ask.
I’d have a problem with just ‘giving’ the interest back if the bank reports the interest as income to me on a 1099-DIV.
That is a pretty creative answer and potentially legal too. There was a guy in Chicagoland that had 9 million and change deposited in his checking account. I think the most he got out of it was a chance to be on the radio where he played a recording of the bank’s automatted phone attendant reading his 7-digit balance. It didn’t take them long to find the mistake and automatically correct it. IIRC, it was only a day or so.
As mentioned above, in order to avoid being liable for conversion, the scenario would be an over-deposit directly into your savings or money market account. But these accounts typically pay out the interest monthly, right? So it seems pretty likely that there would never be a chance to pay the interest and thus no way to ‘grab it’ before the bank finds the error.
In a riskier scenario, couldn’t you use your savings account balance as proof for leveraging stocks or stock-options? Obviously, if the securities lost money before your time was up, then you would be liable for all kinds of fraud. But if the securities went up and you liquidated them in time, would anyone notice? An audit of your finances would make it pretty obvious, but that seems like a smaller risk then buying 2 million dollars worth of stock that you can’t afford.
Cavemike,
Actually, the way 99% of modern US interest-bearing savings and money market accounts work, it’d be calculated based on your average daily balance.
If I had 2 million in the account for 2 whole days and 5 thousand for the other 28 days, my average daily balance would be $138,000.
Still not going to make me rich, but the interest at 2% would take me out to a nice restaurant with Mrs. Slant.
If it happenned to go into an E-Loan savings account paying out 5.16%, I could actually see a pay-out closer to my monthly mortgage payment, which wouldn’t be too shabby.
Edit:
Ah, you assume the bank would take the interest, too.
Perhaps, perhaps not. They might not make the effort unless the injured party made a direct request on the matter; after all, pulling the interest IS more manual effort on the part of your bank’s ops center guys.