Don’t invest in something you don’t understand
Over 40 years ago, director John Landis’ film "Animal House" hit the silver screen. Set your DVR, American Movie Classics will show it on June 14 and June 17. Despite his character Blutto having a minor role, John Belushi steals the show. Also in the closing scene, we see Blutto riding off with a coed in tow growing up to be United States Senator Blutarsky, which is fitting given the Senate’s makeup.
Taking the antics of the fictional Delta Tau Chi to a new level, the Securities and Exchange Commission (SEC) announced a University of Georgia fraternity is the center of a Ponzi scheme. As far as Ponzi schemes go, the misdeed qualifies since the alleged mastermind, Syed Arham Arbab, repaid early investors with funds from newer ones. Sure, $269,000 is a lot of money, but this is small potatoes. A better descriptor would be theft, and it also proves the timeless doctrine “You can’t fix stupid” is not limited to anti-vaxxers.
Arbab, a recent UGA graduate, was listed in the complaint filed in the U.S. District Court for the Middle District of Georgia. In closing Arbab’s E-Trade account, the SEC found Arbab lost almost $300,000 in options trading, the only investing he undertook. Arbab’s two companies, also named in the complaint, share the same address as the Phi Kappa Tau fraternity. While there is nothing wrong with humble beginnings, Hewlett Packard’s first laboratory was a garage, but buyers should beware when your investment firm shares the same address as a frat house.
Red flag number two should have been the outlandish profits Arbab promised. According to the complaint, he indicated returns as high as 56 percent. Eighty years ago W.C Fields wrote and starred in “You Can’t Cheat an Honest Man.” Every con guarantees above-average, often outlandish, returns. Fields portrayed a carnival operator perpetually one step ahead of the jailer while bilking the gullible and greedy.
Don’t invest in something you don’t understand either. When Arbab peddled phony, short-term investments with better than market rate returns, he was just like Field’s character. Every investment has risk, the greater the performance, the higher the risk; it is the way it has been and always will be. The lessons you buy are the ones you remember. The people who foolishly gave Arbab their money learned the hard way.
As much as situations like these make my blood boil, I’m numb; they occur so frequently. Equally confounding is what the investment community does legally. The SEC recently instituted Rule BI for “Best Interest” requiring brokers put client’s interest first. However, according to Dr. Ron Rhoades, director of Western Kentucky University’s Financial Planning Program, along with the AARP, the regulation allows safe harbor exemptions and shamefully fails to put clients’ interest first.
Not everything legal should be and vice versa.
You can’t always get what you want but Buz Livingston, CFP can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.