You can thank low interest rates for the temptation to seek higher returns. Don’t think for a minute that risk/reward no longer applies to you. Like gravity, it’s always there, even if you can’t see it. Unfortunately it’s never fair when those with good intentions get burned. But it happens all the time.
In The Wall Street Journal, Jean Eaglesham reports on a scam that duped investors for $100 million. She writes:
Scott Kohn, a 64-year-old felon, ran a company from a Nevada strip-mall mailbox that investors claim took them for more than $100 million in losses.
Mr. Kohn’s company, Future Income Payments, appears shut, according to court filings. His investors are likely to be wiped out, according to lawyers representing them, who plan to sue scores of firms that sold Future Income products as soon as this week. At least 25 states have taken enforcement actions or are investigating the company, it said in April.
The blow-up shines a light on the boom in opaque private markets, to which investors have flocked in the hope of doing better than they can in traditional stock and bond markets.
Private-market products, including the ones offered by Future Income, are frequently sold by financial advisers. Sales targets are often retirees looking to beat the anemic returns on bonds and other savings products.
Future Income essentially sold investors other people’s pensions. Mr. Kohn’s firm would find workers entitled to pension payments and temporarily buy the rights to those payments—effectively lending the beneficiaries money against their future pension income in what is called a “pension advance.” Then, Future Income would sell the rights to investors for a lump sum. An investor might put up $100,000 in exchange for an income of 7% for five years, for example.
But Future Income’s apparent collapse has left investors stranded. The company is no longer collecting the pension money that funds its own payments to investors, according to court documents. Mr. Kohn couldn’t be reached for comment. It isn’t clear if he has a lawyer.
Read more here.
