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MAKING CENTS OUT OF THE NEWS
Blog #44
(November 19th, 2009)
SCOUNDRELS IN GREEN HATS
By Tom McAllister, CFP®
Investing in eco-friendly enterprises has become very popular in recent years. So-called “green investments” are stocks, exchange-traded funds, and mutual funds in which the underlying businesses are involved in operations aimed at improving the environment. These might range from companies developing alternative energy sources or more efficient recycling of waste, using more efficient packaging materials, or inventing land conservation technology, to name just a few.
Apparently, though, “green investing” has been attracting some attention of the wrong kind. Once again, scoundrels and thieves have played upon the naiveté and trust of investors. The SEC reported earlier this month that 300 investors, many among the elderly or those nearing retirement, were lured into a $30 million Ponzi scheme, this time featuring “green investments”.
The scam was perpetrated by two executives of Pennsylvania-based Mantria Corporation, Wayde and Donna McKelvy, working with Troy Wragg and Amanda Knorr, representatives of an investment company known as Speed of Wealth LLC. Together, the four offered seminars and webinars in which they urged investors to liquidate all of their retirement plans and traditional investment assets and to sell their homes, investing all the proceeds in Mantria projects.
Needless to say, no reputable investment firm would ever recommend such a drastic course of action to help fund a start-up company. Why, then, did investors fall for such a phony deal? First, the temptation of promised annual returns ranging from 17% annually to “hundreds of percents” proved difficult to resist. More important, the two projects to which Mantria was purportedly devoted sounded very appealing to an environmentally conscious audience. Plans included the building of a “carbon negative” housing community in Tennessee; a second project involved a “biochar” charcoal substitute created out of organic waste.
In reality, Mantria’s environmental initiatives generated little significant cash. Instead, returns paid to early investors were funded almost exclusively from subsequent investor contributions. Despite continued assurances from the four miscreants that twenty-five tons of “biochar” was being produced daily, no production was ever started. Furthermore, no “green homes” were ever built on the vacant lots investors had purchased from Mantria.
While the Mantria Ponzi scheme is small compared to the Bernard Madoff swindle, it demonstrates the same need for caution I cited in my blog twice earlier this year. With Madoff having been found guilty and serving a 150-year sentence, his accountant has now been charged, along with two computer technicians who prepared phony statements for investors. One “birddog” who referred investors to Madoff in return for a finder’s fee has committed suicide. Several other “finders” should be named soon.
Meanwhile Marcus Schrenker, the wealth advisor who bailed out of his plane, allowing it to crash into a Florida swamp, has been convicted and sentenced by the federal government for doing so, and now resides in our local Hamilton County jail awaiting state trial on securities and insurance law violations.
Art Nadel of Sarasota, who ran a multi-million dollar hedge fund scheme, awaits trial on fraud and securities violations in a New York City jail.
In all four of these cases, two warning signs were there in plain sight:
1. The monies and securities were not held by an independent, insured custodian.
2. Greater than market returns were promised on these private offerings.
Always remember: If it sounds too good to be true – "green" or not – it probably is!
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