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Fini les ecrase-"manets"!
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Discussion Starter · #1 ·
I just found out that John Donnelly, a longtime acquaintance whom I considered a friend, if not a close one, was just arrested for running an $11 million Ponzi scheme since 1998. His two biggest "investors" are good friends of mine (and very close friends with him), and they turned him in. Apparently one of them tried to cash out because of how things were looking in the markets these days, and John spilled his guts to him--he hadn't made a single securities trade since 2002.

Because of who these guys were to John, and how well I know all three, I have no doubt myself that he's guilty, and it's terribly sad. I'd love to be wrong, but I'm not seeing much hope right now.

I know a lot of people who invested smaller sums of money with him as well--probably the majority of my closest friends. I can hardly imagine how friends with kids and dreams of home ownership and safe retirements are feeling right now. Just awful. I tried to invest with him quite a few years back, and decided not to on the basis of the extremely sketchy prospectus he gave me. I never thought he was a crook, but I didn't think I liked my odds, so didn't invest. Whew.

He traded on his connection to the small-time motorcycle racing community, and a lot of guys who could ill afford to put their money with him did so anyway because of the instant trust such a connection affords. He was a good racer, quick to help and generous with his time and supplies. He was obviously doing well, and he was connected to some of the best and best-known regional and national racers. He had a lot of credibility. And if the charges are shown to be true, he robbed a lot of people who came to him over others because of his affinity for a sport they loved and his association with people they knew and respected.

For those few who read the article I posted a couple of days ago about the "Kudos Economy," this is the very dark side of that.

We all need to be aware that dealing with people within your affinity group, whether it's religious, ethnic, economic or merely social (like here), makes you MORE vulnerable to fraud and manipulation, not less. We want to trust people who are like us, however we choose to define that, and there are people out there who will take advantage of that.

While I know and like a lot of people on here, and believe that people don't manipulate this group for personal gain, we should all be aware that the ties we forge here are no substitute for due diligence when it comes to our money or personal safety.

I have friends here, more friends to make, and lots more people I'd like to know better (and face-to-face), but more than ever I'm feeling how tenuous the bonds of friendship can be if one party doesn't respect them, and how positive regard and trust are not the same thing, and shouldn't be confused with each other.
 

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corning my own beef
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5,713 Posts
damn... *shaking my head*


just damn.
 

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Captain Obvious
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11,876 Posts
it's pretty amazing how many similar stories are coming up. somebody that many people i work with knew, was just arrested in boulder i think. same deal.
 

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eminence grease
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The part I find fascinating is that these guys don't set a target and once having reached it, just disappear. They know it's going to fail sooner or later, Ponzis just do.

I know as soon as I hit 10M, I'm off to Ireland.
 

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Fini les ecrase-"manets"!
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9,416 Posts
Discussion Starter · #8 ·
terry b said:
The part I find fascinating is that these guys don't set a target and once having reached it, just disappear. They know it's going to fail sooner or later, Ponzis just do.

I know as soon as I hit 10M, I'm off to Ireland.
Well, the story typically is that guys start these things with dreams of doing it for real. Then they get into a hole, and decide, just this one time, I'll pay an investor with another investor's money--"I just can't disappoint my friends." Pretty soon getting more investors to pay off older ones is the only way they can see to survive, as potential criminal charges just pile up and pile up around them.

It's really common for these guys to eventually confess rather than being tracked down. And it's also common for them to talk about how they always thought they could turn it around. I'm sure we'll get the same from John.
 

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Fat'r + Slow'r than TMB
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10,083 Posts
weltyed said:
i only trust one person with my finances:
gutfiddle
Thats because he actually drinks Natty Lite for it fiscal conservativeness.
 

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Registered
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1,252 Posts
But you still wonder. How does Bernie Madoff not realize at some point he needs to buy a frickin plane ticket and get the heck out of dodge. I would rather live n. korea than be in jail. You do wonder why basic finance is not a core subject in high school. We all make mistakes in investing but I am amazed by the number of people who had every red cent invested with madoff. Or every dollar in Enron stock just because they work there. I didnt know jack about finance until well into college.
 

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Lets Go Hokies!!!
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5,930 Posts
Dang. Thats pretty crazy. I once considered purchasing property with some friends, but I'm glad we never went through with it.

I can't imagine what your friends who invested are feeling right now. The betrayal would be far worse than the financial loss for me.
 

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Seat's not level
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19,372 Posts
corky said:
when are people gonna wise up.....? investing is gambling
Yea, but there is a difference in gambling and having the house deal from the bottom of the deck.
 

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off the back
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15,584 Posts
bikeboy389 said:
Well, the story typically is that guys start these things with dreams of doing it for real. Then they get into a hole, and decide, just this one time, I'll pay an investor with another investor's money--"I just can't disappoint my friends." Pretty soon getting more investors to pay off older ones is the only way they can see to survive, as potential criminal charges just pile up and pile up around them.

It's really common for these guys to eventually confess rather than being tracked down. And it's also common for them to talk about how they always thought they could turn it around. I'm sure we'll get the same from John.
And yet, at the same time they're wondering how to pay off investors, they're pocketing millions of these dollars for themselves.

Maybe I'm just naive, but I just can't wrap my head around the idea of people doing stuff like this to stangers, let alone people who they are friends with. I mean, I could never conceive of taking money from my friends and then spending it for myself. It just doesn't figure. And yet, these guys knowingly do so, to the tune of millions or even billions.

What the hell is wrong with people?
 

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Seat's not level
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19,372 Posts
bigmig19 said:
You do wonder why basic finance is not a core subject in high school.
Core subject? :lol: That's funny. I don't think math is even a core subject anymore.
 

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Fini les ecrase-"manets"!
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9,416 Posts
Discussion Starter · #17 ·
corky said:
when are people gonna wise up.....? investing is gambling
this wasn't investing, apparently. It was giving a guy your money, so he could bank it and pay off previous dupes with your principal. And pay himself a fat salary and fees, if I'm reading the reporting right. There was no investing going on--sounds like, in addition to having made absolutely no trades since 2002, he only made seven trades EVER.

And I know where the money went. Hummer and other large vehicles, lots of motorcycles, fancy house, farm property, nice clothes, trips, a foreign adoption (expensive), racing schools, actual motorcycle racing, and to some extent charitable donations to youth groups and stuff like that. And the generation of false performance statements for all his "investors." I'm sure that was expensive.:rolleyes:

I can only hope that some of the money is left so my friends don't lose everything.
 

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Administrator
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terry b said:
The part I find fascinating is that these guys don't set a target and once having reached it, just disappear. They know it's going to fail sooner or later, Ponzis just do.

I know as soon as I hit 10M, I'm off to Ireland.
No, that's the amateur move. You still can be found & extradited. The money and you need to go to a place you cannot be extradited from. Convert the money into fungible items which are easy to sell: gold, diamonds, rare stamps and coins ect. Also good to have access to charter planes and boats too, you may need to move quickly (and easier to haul your ill gotten gains).
 

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Fini les ecrase-"manets"!
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9,416 Posts
Discussion Starter · #19 ·
murbike said:
It's going to be a rough time in that industry, I do believe, as more and more of these things pop up.
Since the Madoff story broke, my assumption was that a LOT of investment pools were going to show up to be Ponzi schemes as more and more people wanted their money out to put into the bank or treasury bonds and the funds just weren't there.

In fact, yesterday, when I was getting a haircut and there was a bunch of Madoff guilty plea news on the TV there, I briefly thought of John's business and wondered if he was up to something. Then I put it out of my mind.

Turns out it's pretty much exactly the same. Right down the line.
 

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Steaming piles of opinion
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bikeboy389 said:
We all need to be aware that dealing with people within your affinity group, whether it's religious, ethnic, economic or merely social (like here), makes you MORE vulnerable to fraud and manipulation, not less. We want to trust people who are like us, however we choose to define that, and there are people out there who will take advantage of that.
Sad indeed. While a rising tide lifts all boats, it's apparent that a slack tide reveals a lot of junk on the bottom. We'll see more of these revealed in the coming months.


Side note: The greatest number of embezzlements and frauds occur in churches and charities. Their inherent trusting nature tends to lead to lax controls. Anyone on a BOD or administrative council of such an institution, insist on finding a good third party CPA and having a controls review done. You don't want your name associated with 'the gang that didn't do anything about it, and for more than just your good reputation.
 
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