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Sludge Report #10 - Free Money For Greedy Mystery

NOTE: Authors of this report will be anonymous and wide ranging. Indeed you are invited to contribute: The format is as a reporters notebook. It will be published as and when material is available. C.D. Sludge can be contacted at sludge@scoop.co.nz. The Sludge Report is available as a free email service..Click HERE to subscribe...


Could This Be For Real?

Sludge Report #10 - A Special Investigation....

C.D. Sludge has recently stumbled over what appears to be a mother-load of the stuff.

Today's Sludge Report relates a strange tale involving the visit of a NZ MP to Fiji on a speaking trip, free money for the secretive and greedy, and a so called "financial freedom" movement which promotes tax avoidance, offshore trusts and VERY high yield investment schemes. All this is set against a background of greed and secrecy. And it is happening here in New Zealand.

Over coming weeks Sludge will endeavour to get to the bottom of this, but given the emphasis of secrecy in this strange tale, holds out little hope of finding any quick answers. In the meantime there would appear to be good reason for a little egg to start flying around the place.

THE SEMINAR ORGANISATIONS

Sludge's Scoop begins in Fiji in March last year with the visit of a NZ MP to a seminar organised by a group called Investors International . The MP was invited as a speaker and told Sludge in a brief exchange last week that he didn't know what the seminar was about in advance, had he known he wouldn't have gone.

Certainly this was no ordinary educational business seminar.

1200 people attended, and according to Sludge's sources around 700 of these were New Zealanders.

The seminars are officially purely educational teaching the participants about how to invest. They are also taught the "truth" about the financial system. How our banks and governments are corrupt and how becoming a millionaire is easy if you know how.

For a fee of from NZD$6000 to NZD$14,000 (plus accommodation and travel) the attendees hear from a range of motivational and "expert" speakers over a five day period.

The general thrust of all this is that the world is dog eat dog world and the smart get to do the eating.

Anybody with the requisite grey matter can become a millionaire if they are smart. If they know the right people, have the right tools, know the rules and know when to keep their mouths shut.

Participants have IBC's - International Business Companies - and offshore trusts explained to them.

The first are useful to enable the smart to appear legally as if they are legitimate investment companies and should ideally have names like "Buckingham Investments" or "The Franklin Foundation".

Offshore trusts are useful speakers explain because they are legally a different entity and can be used to make what might otherwise be illegal be - allegedly - legal. It was explained to Sludge thus. "Your trust is like a brother or relative living overseas, it is not you and when it acts it is not you that is acting it is a separate legal entity, the trust."

Trusts, conference participants are informed, are also ideal for preventing your hard earned money and assets from being taken from you by creditors., litigants and the government by way of taxation. This is fair enough

As one promotional pamphlet says.

"Every day our debt-ridden government is becoming increasingly intrusive into our personal and business affairs. Sophisticated computer databases are set up to pry into every aspect of our lives - particularly our finances. Why? Because the government is in a feeding frenzy. They need more and more tax money to pay for the enormous debt they are piling up day by day."

The participants need not be all that smart however in order to participate. All they really need is money. IBC's and trusts can be purchased from other participants at the conference - retailers - and as long as they have their eyes open and know who to talk to, conference attendees will inevitably make the necessary connections at these conferences.

This is the real business of the conference, and the reason for paying through the nose to attend.

Participants pay because of the lure of very high yielding investment schemes that these same fellow participants will - if you pay the right fees - let you participate in.

On the surface the conference probably appears relatively legitimate, albeit severely twisted. But it is really this secondary trading environment - provided under the cover of the conference - that is what the convention is all about.

These conferences are held regularly and participants are encouraged, with the prospect of commissions to encourage others to come along.

Participants are also offered the opportunity of becoming retailers of the information materials that are supplied with the conference. Prospective participants are expected to pay quite dearly for these materials, around $1000, and the commission's payable to the sellers are substantial. Later if the participants are keen enough they can attend more conferences and may eventually be invited to become retailers themselves in which case they can then solicit funds for the high yielding investment schemes that are what this activity is all about.

In Fiji in March however the conference spoken to by an NZ MP didn't go entirely to plan.

Higher up the feeding chain conference organisers were having a turf war.

The NZ connection who had brought more than half the participants refuses to hand over the cash to his superior.

Allegedly a small fist-fight took place over this. In the end the NZ connection had the cash and was in effect able to take over a substantial number of the clientele much to the disgust of Investors International's US principal Rudolf van Lin. Unfortunately van Lin wasn't exactly in a position to get any official assistance to get his money and the Kiwi entrepreneur won on the day.

After the conference van Lin penned a bitter article in his magazine called The Pamphleteer.

"Over 1200 people attended our most successful seminar yet in Fiji.. there were some small incidents that marred the proceedings, notably the presentation of some highly questionable and fraudulent banking programmes in various surrounding hotels. One must ask the question: Why do these people so desperately want to get their shady programs to I.I. clients?' Then there were a group of disgruntled former I.I. employees, retailers and clients who had pre-planned to steal and raid as many clients from I.I. as possible in order to promote their own imitation of what I.I. has to offer.

Their presentation consisted of slamming and viciously maligning I.I and me first, and then to sell their program, an outright copy of I.I.

One has to wonder what motivates such people. First they made lots of money with I.I. Attended a seminar or two, only now to attack then pre-plan and foist their theft of ideas and content on unsuspecting I.I. clients during our seminar." - The Pamphleteer - April 1999.

Shortly after Rudolf may have twigged to what was happening to him when he was arrested by US officials and charged with Securities Fraud.

Later still in September 1999 the NZ Securities Commission issued a warning concerning Investors International - whose programme the Commission said - was being promoted heavily in Auckland, Waikato, the Bay of Plenty and Wellington.

"We are informed that the founder of the scheme is a Dr Rudolf van Lin, also known as Rudolf Linshoten. We are informed that the US Securities Commission has prosectued this person for the fraudulent offer and sale of unregistered securities."

By now in New Zealand however the scheme had been transformed and was certainly not stopped by the Securities Commission's warning.

For the rest of 1999 Investors International was in abeyance - temporarily. ( Interestingly the organisation seems to be back to its old game now and a seminar was held this month in Japan according to one investor spoken to by Sludge.)

In NZ the rebel NZ former staff were now promoting their own seminar as an alternative, under the name IFES. IFES was run by the organisation Financial Education Services Limited (FESL).

Around September an IFES conference was held in the Waipuna Hotel in Auckland. Around 300 attended. Again the fees were very high and again the period of the seminar was five days.

This time the list of speakers included prominent economist. Again, like the MP who attended in Fiji, Sludge doubts this economist - who appears often in the media - had any idea what was really going on at the Waipuna convention.

However, had he hung around till the final day he might have had his eyes raised a little by some of the remarks from the organisers.

On a tape obtained by Sludge IFES head honcho explained why the conference was being held in New Zealand for the first time.

Previously all seminars had been held offshore with only preliminary meetings held onshore. It appears he had had a few troubles with authorities at a recent seminar held in Hong Kong. The Auckland seminar was his solution.

Here in NZ the lie of the land was well known, he told participants. " Here if we have any problems we can call up the Prime Minister or our local MP Maurice Williamson," he said. Later the "Australian face of IFES" stressed the importance of confidentiality agreements participants had been required to sign. "There is a one million writ waiting for the first person to talk", he said.

Sludge rang two of the participants who went to the Waipuna seminar to ask them how it had gone.

Both were less than forthcoming and both denied that any high yielding security schemes had been marketed either publicly or privately at the seminar. However they did say the seminar was thoroughly worthwhile and that they had profited from attending.

Both also said they had found the seminar very educational and that they had learned the most valuable lessons of their lives there.

One said he had enjoyed it so much he had gone to several more seminars since including another Investors International seminar in Japan in the past fortnight.

He also said that IFES was now no-longer operating seminars in NZ.

Sludge understands that there are at least five companies running seminars of a similar nature to I.I. and I.F.E.S in the Asia Pacific region and targeting Australian and NZ investors. These are the John Gaunt Society (online at www.globalfreedom.com) and IMI Pacific, which was recently placed in Statutory Management and is no longer operating.

THE NATURE OF THE DEALS

In its warning concerning Investors International the NZ Securities Commission says the meetings held by I.I. retailers in NZ had been used to promote a way for people to gain access, "to secure investment opportunities that return a minimum of 10 per cent a month."

"This is a patently unattainable return similar to that projected for prime bank schemes which we know to be fraudulent. Conventional financial information about these schemes is not available to investors", the commission said.

This last line bears close examination - "Conventional financial information about these schemes is not available to investors."

This is somewhat ironic in that this is exactly what the participants in the seminars are also told.

The sales pitch of I.I.'s retailers is that the world is not as it looks. Unconventional returns are available if you are prepared to take the risks and obey the rules.

So how do these deals work?

First of all participants who want to earn 10% per month or more have to have an offshore trust or IBC (International Business Company) - preferably both. This is not difficult at the seminars as there are plenty or retailers who will provide the information on how to get one.

Sludge has documentation on trusts offered by Prosper International Limited, based in Belize, and on IBC's based in Panama and sold by a firm based in Queensland.

For AUD$3250 (discounted to seminar participants from AUD$5400) LeppLawrence + Associates will set up a Panamanian IBC for you. For your money you get.

1. A board of nominee directors; 2. A power of Attorney giving you (the purchaser) the right to sign on behalf of the company; 3. An undated, pre-signed Letter of Resignation from the board of directors; 4. A company seal; 5. Bearer Share Certificates containing all of the Authorized capital; 6. Three bank accounts. One for the IBC which does the investing and earns the returns, one a "pass-through" account which you use to communicate "legitimately" with the bank, and one a Maestro debit card that can be used at ATM's to withdraw your tax-free cash earnings.

Needless to say this is on the face of it a highly dubious if not down-right illegal structure. In short - a sham.

The next and perhaps more confusing aspect of the deals is the nature of the high yield earning deals themselves. Once you have your IBC or Trust you transfer it money and then you - or it - can start trading.




The deals are set out in tables as the above and below photos show.




The first, as you can see, offers a return of 20% compounding per month. An investment of $20,000 earns you $522,000 over 12 months. The second a compound return far higher which results in $1 million be multiplied to $16.5 million over a year.

The general rule for these "investment" offers is that the higher the risk taken, the higher the rate of return. For example in one deal seen by Sludge a minimum investment of $5000 USD earned 15% per month, while an investment of $25000 USD would earn 20% per month, $50,000 USD could earn 25% a month etc.

The explanation for these deals provided by the retailers is a little odd.

Essentially investors are told that the transactions are run at a high level by bank traders. Once money is aggregated by the middle-men to whom you wire your funds, the deals are closed and commence operation. The returns are paid into your offshore bank account and you can spend the money with your debit card.

It appears money from the lower risk, lower yielding, schemes is aggregated into the $1million "trades" like the Goshen one pictured above. The middle-men make the difference between the return paid to the investors, and that earned from the high level trades.

Sometimes the investments are said to be insured by insurers such as Lloyds of London - meaning that if the money goes west somewhere in the chain it will be repaid by the insurers. However it is always stressed to those involved that there is risk involved in the transactions. If you want the insurers to pay up you as investor have to keep quiet and let the legal processes in foreign countries take their course. The golden rule is that everything is secret, everything is deniable and kicking up a fuss will get you nowhere.

Other things can also go wrong resulting in the loss of your money.

In the event "the rules" are broken, participants offshore accounts maybe frozen or closed. The transactions may be unwound and no money paid. In which case the investor is under strict orders not to complain. Otherwise they will certainly not be allowed to participate any more.

Just as the Securities Commission says these trades are not conventional. And it is also obvious that information on these schemes is not normally available to investors.

Notably however, the Commission in its warnings does not say the schemes do not exist, just that information is "not available to investors".

The Sec Com also hints that the schemes may involve fraudulent use of Prime Bank Instruments. In the world of high level fraud investigation these sort of transactions are sometimes known as C-Bank Fraud. And are sometimes funded by the creation of bad loans.

Again not a lot is known about these frauds - but there is at least some tacit admission in the fact that these things are known about that some of these schemes are real, i.e. that the investors do in fact in some instances earn the returns offered.

And when you think about it, how would International Investors be able to convince 1200 people to stump up $14,000 a piece to attend these conferences if all the participants were being ripped off? It stands to reason that there is more to this than meets the eye.

THE RULES AND WHO ENFORCES THEM

Sludge's sources say the rules to participation are simple and are well enforced - just who by is not particularly clear. There are numerous stories told among participants of people breaking the rules and losing their money.

Rudolf van Lin for example is said to have been set up by his superiors after he mouthed off, both in Fiji and on a cruise seminar allegedly attended by representatives of the FBI and CIA. Similarly the IMI Pacific crew is said to have been busted by the system for breaking the rules.

So what are these rules?

First1y participants have to invest their own money. They are not allowed to pool funds from a group of investors or friends onshore and then invest them in an IBC and subsequently a scheme.

The reason for this is that it is important that there is no onshore money trail which might come within the jurisdiction of the Securities Commission or any other official authorities. There is no problem with the activities taking place in Panama on the other hand because there there is no Securities Commission to speak of.

Hence the IMI Pacific failure - IMI was an onshore operation aggregating funds for investment. When the higher echelons heard about the scheme it wasn't to be allowed, the plug was pulled, IMI Pacific was unable to pay its investors and the stack of cards came tumbling down.

Interestingly Sludge's sources say that the money taken from investors by IMI Pacific is closer to $40 million than the $7 million that went West officially and for which investigations are currently underway. This means, of course, that some investors were paid, which would explain why the principles of the company were still able to easily command large audiences to seminars even after their company was placed in Statutory Management.

Secondly participants in the schemes are not supposed to hold onshore seminars - for the same reason. Promotional meetings are okay but all the real business is supposed to be done offshore.

Again the reason is obvious. When NZers are solicited to by people selling illegal unregistered securities in Fiji, no crime is committed in NZ. There is therefore no risk of prosecution by the New Zealand SFO.

Hence the fact IFES is, according to the investor spoken by Sludge, no longer holding seminars in New Zealand. Doing so is against the rules.

Thirdly the minimum buy-in price is supposed to be around the $30,000 NZ Dollar mark. That is, once the cost of attending a seminar, opening an IBC or trust and making the first investment in a trade is taken together. This is another area in which IMI Pacific broke the rules - they took investments of around $500.

The reason for this rule is also simple.

All activity must be offshore to avoid it coming to the attention of authorities. Smaller sums are likely to involve onshore aggregation. In addition the high buy in price means that only the seriously greedy and moderately wealthy can participate. It also stands to reason that someone who has invested $30,000 plus is far likely to blab than someone with less to lose.

Fourthly the participants and retailers are not supposed to be brazen about the schemes. This is probably partly why van Lin ended up in jail, and is yet another rule broken by the boys at IMI Pacific.

When the rules are broken the sanctions are extremely simple.

The IBC's and Trusts all exist essentially at the discretion of the financiers. If you complain to the authorities or break the rules the plug gets pulled and your offshore funds are confiscated. This results periodically in the prosecution of the rule-breakers and serves as an example to others.

CAN THIS BE FOR REAL?

Sludge has to agree that this story is far fetched in the extreme. Essentially we have allegations here that money is being in effect given away to the greedy, secretive and well connected.

Why is the obvious question and Sludge does not yet know the answer, though a few theories are around.

That said, all the evidence obtained so far appears to confirm the explanation provided above.

Sludge plans to continue to investigate these activities over coming weeks and months to see if any better explanation of this strange tale can be found.

This week Sludge will start by asking for an explanation from the NZ MP who attended the conference in Fiji. And from the prominent economist who spoke in Auckland.

In Sludge's opinion an explanation of exactly what this MP thinks happened in Fiji ought to be forthcoming. Ditto our notable economist.

Sludge consulted a wiser elder reporter who specialises in the fraud area on what he thought was going on here last week.

His opinion was that the schemes were far more likely just traditional pyramid structures than C-Bank Fraud related. These schemes are dependent on incoming funds at the base from new recruits to finance high returns to those more highly placed in the pyramid.

However Sludge has impersonated an investor and has spoken to a retailer and it was made perfectly clear that there was no obligation to recruit and that many participants in the schemes did not do so.

Sludge is thus more inclined to think that what we have here is a retail operation being run by C-Bank fraudsters. The reason for doing so - aside from promoting the greedy and secretive - however remains a mustery.

Either way whatever is going on here is illegal. If it is a straight scam it is illegal as theft. If it is real and returns are paid then it is the illegal sale of unregistered securities and amounts to large scale tax avoidance as well.

Watch this space over days and weeks for more on the free money mystery. Only from Sludge and only on Scoop.

(c) Sludge 2000

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