Over the years, I've noticed that a great many individual investors have a pre-occupation with wanting "hot tips" from newsletter writers and seminar speakers. At investment seminars where I've been invited as a speaker (usually about taxes), I see the attendees eagerly writing down the ticker symbols of companies mentioned by the other speakers. Hopefully, these investors don't rush to call their brokers based purely on such hot tips, but I suspect that many do.

Derek Sambrook, Director of Trust Services, S.A. in Panama, offers the following sage advice regarding the "Seven Deadly Sins of Investors" -- particularly in the offshore markets.

"Financial folly … abounds, as you will have seen from our June newsletter (Fraud.con). There are Seven Deadly Sins committed every day of the week by the innocent:

1. Deal with professionals who are not licensed in the jurisdiction where their principal office operates.
2. Do business with professionals who are not audited annually, preferably by an international firm.
3. Don’t consider obtaining references or find out how long the business has been operating.
4. Take no account of the caliber of management, particularly their qualifications and experience.
5. Give no thought to meeting the senior personnel before conducting business.
6. Base your choice of professionals on the lowest fees tariff.
7. Ignore taking tax and legal advice when necessary."

Those who might be interested in contacting him can do so via email to sambrook@trustserv.com or by visiting their web site at http://www.trustserv.com

Con artists are rarely able to cheat someone is free of greed or fear.

Greed is the emotion that leads us to want something for nothing or to seek high returns on investments with claims of little risk. Greed gives us the motive to be willing to take advantage of another person. Someone once said that "You can't con an honest man". The word "honest" could be substituted for "someone who isn't greedy". 

Your single best defense against any potential scam or scheme is to be willing to walk away from the perceived "opportunity". When you know that professional investment managers rarely make more than the returns achieved by the various market averages, you should be instantly suspicious of any offer that alleges to give you the opportunity to get results far greater than those obtained by professional investors. When the rate of return for a home mortgage is at 7% per year, it doesn't make sense that you can make 10% a month on any kind of investment. 

The second emotion that causes many people to lose money is fear. 

Nearly every con game or scam tries to encourage a sense of urgency or you lose the opportunity. You have to move fast, to be decisive, say the hustlers and promoters. The fear of losing an opportunity to get something for nothing causes people to invest without investigating first. 

Greed causes investors to buy at the top of a rising market and fear causes them to sell at the bottom.

Greed causes otherwise sane people to give their life savings to a total stranger who is offering the allure of a "special opportunity" to get high returns without risk or effort. Fear often prevents them from even seeking help to recover their money. 

Greed causes people to buy trust packages that allege they can magically move money between a number of trusts (like the carnival shell game) and end up not owing taxes on their income. 

People who are inherently honest don't expect something for nothing. They are immediately suspicious of anyone who offers them an "opportunity" that seeks to take advantage of others. Such people are very hard to trick into some kind of scam or con game. 

Do yourself a favor. Develop a private system of ranking various opportunities on the "Scam Scale". The greater the potential opportunity in relation to the amount at risk, the greater the potential for a scam and the more time should be taken to check it out. And, the more urgent the "opportunity" is, the greater the potential for it's being a scam of some kind. 

There are real opportunities available in this world, but they usually require a lot of hard work and patience. The promise of easy money is like the odds of winning the lottery. It's o.k. to bet a few bucks that you can afford to lose, but it's really foolish to bet the farm on a million to one gamble. 

Due diligence is the process of investigating a potential investment.

Brokerage firms in the U.S. are required by the Securities and Exchange Commission to perform certain due diligence procedures to evaluate and investigate the companies that are offering new securities (or secondary issues) for sale through the brokerage firm. (Please note that they are not required to do this for all listed securities that have been previously registered with the SEC.) The term is also used in connection with the purchase of a business or real estate and in mergers or acquisitions. All of the investigative procedures that are used by a potential buyer to evaluate and investigate the information provided by a potential seller are called due diligence. Outside the U.S., the same process is generally referred to as "vetting". When individuals are contemplating the purchase of some stock in a company, they have the freedom to decide how much time and money to spend to investigate and evaluate the company behind the potential investment. Typically, they obtain data summaries of financial information on U.S. companies from Standard & Poor's or similar services. These services get the information from the quarterly and annual financial statements that are filed with the SEC and are certified by independent CPA firms as to the validity of the accounting procedures utilized.

The problem for the offshore investor is that similar information isn't always as readily available about companies outside the U.S. who are not subject to the U.S. securities laws by virtue of being listed on one of the U.S. securities exchanges. According to Adrian Day (see information below) "… although in many countries there are strict standard for accounting and disclosure, in other countries there are not. Certainly many countries have adequate standards (Britain, Canada and many others) and require good disclosure (though of course not to US GAAP but to their own accounting guidelines)."

Failing to undertake basic "due diligence" (or vetting as they call it outside the U.S.) can be financial folly in the offshore investment game, where financial information about companies (or the people behind them) is much harder to secure and far more costly when it is available.

As the moderator of the Asset Protection and Offshore Forum (discontinued in 2002), one of the most frequent requests I received was for information about the reputation of some specific company or individual outside the U.S. For legal reasons, I didn't permit any endorsements -- nor any derogatory comments about persons, companies or products -- on my email forum and don't have any web pages with such information. However, I'm happy to provide information about anyone who is willing to help provide investigative services for investors about various offshore individuals or companies. Here are some of the companies or persons I've found that do offer help in doing due diligence or vetting for offshore investors. I've included myself in this list because while I don't investigate the background of various promoters or the merits of any investments, I can and will help potential investors to evaluate the U.S. tax implications and the tax suitability of specific offshore investments. (Subject to limitations on my time.)

David Marchant is the author and publisher of Offshore Alert, an investigative research service that is delivered as a monthly newsletter, combined with a large computer database for subscribers. He is an investigative journalist with a focus on Bermuda and the Caribbean countries. He has generated a lot of publicity by accusing the Marc Harris organization in Panama of mis-management of client funds and he won a libel lawsuit filed against him by Harris. He also took issue with the First International Bank of Grenada and has been at the forefront of many exposes of fraudulent investment schemes offshore. In addition to his writing and maintaining his extensive online database, he also provides some investigative services for individual clients.

This bi-monthly offshore magazine publishes the names of various companies or financial institutions that have "... been the subject of warning notices issued by various regulatory authorities for reasons ranging from suspicious transactions to carrying on business without the proper license." They list the name of the company, the jurisdiction where they are located (if known), the source of the regulatory warning, the date of the warning and some brief clarifying comments. They also maintain a web site for the public with the accumulated names from current and past issues of their publication.

Matt Blackman is a free lance writer/journalist who writes extensively for a number of offshore publications and he also publishes an email newsletter for subscribers. He maintains a web site for subscribers that is not available to the public but which does include an extensive database of articles about various companies or individuals in the offshore community. His public web site also provides information about various investment scams and schemes on or through the Internet. He is available for private investigative due diligence for investors interested in various offshore investments.

Jay Adkisson is an attorney who has written extensively about various offshore investment scams and schemes being promoted on the Internet. His web site is a compilation of the many articles he has written on the subject and is an excellent place to begin with respect to investigating any potential offshore investment. If an investment looks like a Ponzi scheme or a multi-level marketing scheme or like one of the many illegal tax avoidance schemes, the potential investor should be prepared to extend much greater time and funds to investigate and evaluate the sponsor, promoter or vendor of the investment.

Investigative Services

During the decade when tax shelters were the "financial bubble" of the times, I was the editor of a widely read tax newsletter and I wrote extensively about various kinds of tax shelter deals. Subscribers would seek me out to help them investigate and evaluate specific tax shelter offerings they had received. My focus in that work was on whether the alleged tax benefits were legitimate within the law and whether the tax benefits were suitable for the specific investor. Many offshore investments have complicated tax implications. Even though the investor may not want to buy the investment for purely tax reasons, the tax consequences should be investigated in advance to avoid unpleasant surprises. Although most of my time is consumed with the publication of my various books and the Wealth Protection Library, I am available to assist U.S. investors who are seeking guidance with respect to the legitimacy and the suitability of the tax attributes of various offshore investments. However, as much as I'd like to help those who can't afford my fees, my advice is that if you can't afford my help, you probably can't afford  the risk of losing your money. You should therefore stick to the safe and low return investments available in the states.

Getting reliable information about non-U.S. companies is both difficult and expensive. An alternative for the investor who doesn't have the time for such research is to retain an investment advisor who specializes in international investments. One whom I have known for many years and am comfortable about recommending is Adrian Day. For further information call (410) 224-2037 or write to Adrian Day, 900 Bestgate Road, Suite 405, Annapolis, MD 21401.

An excellent article by James P. Duffy, III offers some insight into the background of due diligence and offers some guidance as to what steps are included in the process. According to Duffy, due diligence can be described as "... basically common sense coupled with a reasonable degree of skepticism." He goes on to describe some of the steps involved in the process. See http://www.bergduffy.com/Personnel/Articles/95ddartl.htm

A business due diligence checklist is available for $99.00 from The Corporate Partnering Institute that includes a guide to the various areas of inquiry that should be made when considering the purchase of a company. I believe it was Warren Buffett who said that he investigates a potential stock purchase as if he were going to buy the company -- and this checklist would offer some help in knowing what a buyer of a business would or should find out before cutting a check. I haven't bought the checklist myself and have no personal knowledge of the company. http://www.Corporate-Partnering.com/dwcl-dd.htm

If you enter "due diligence" (with the quote marks) into one or more of the various search engines, you will encounter quite a few web documents relating the subject. However, very few of them are about due diligence for investors and even fewer deal with the unique problems of investigating any offshore related investments. I quit after checking about 50 links and only finding two that were worth mentioning in this article.

I'd like to include more information about due diligence or investigative services for offshore investors in this report and web page and will be happy to review any information provided to me about such services -- whether located in the U.S. or abroad. Please send any web site URLs to me by email. Printed information should be sent to Vernon Jacobs, Offshore Press, Inc., POB 8194, Prairie Village, KS 66208. Up to three or four pages of fax information can be sent after normal working hours or on weekends to 1-(913) 432-7174.

This article will be archived and updated at http://www.offshorepress.com/duediligence.htm

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