Another Day, Another Ponzi

Maybe it’s just me, but it seems there has been an unusually high number of investment-related frauds hitting the news lately. The elaborate $50 billion Ponzi Scheme orchestrated by Bernard Madoff could well be the largest swindle ever perpetrated, but for my money, Marcus Schrenker’s faking of his own death by parachuting from his plane just before it plunged into a swamp in Florida, ranks as the most inventive. He even had a motorcycle stashed nearby upon which to escape, but alas, his freedom lasted only a few days before he was captured. While the total value of his fraud is much less than Madoff’s, you have to award Schrenker additional style points for originality.

Today, comes news of another scam – this time out of Japan – using a currency trading fund as the bait, and it appears that most of the victims are Japanese housewives.

For those that have watched the rise of the retail forex market, this is interesting as the Japanese housewife is a bit of forex folklore. As online currency trading grew, it exploded in Japan and became a favored way for housewives to add to the family income without leaving the home; several even became minor celebrities as there were a number of high-dollar success stories. Nicknamed “Mrs. Watanabes”, the housewives practically cornered the market on the yen-based carry trade using low-yielding yen to finance highly-leveraged positions holding Aussie and New Zealand dollars which paid much greater interest.

Unfortunately, many of the Mrs. Watanabes suffered huge losses when exchange rates suddenly moved against them and stories of entire household savings being wiped out were all-too-common. The recent narrowing of global interest rates has further reduced the effectiveness of the carry trade strategy leaving many former traders looking for another way to profit in the currency market.

Enter Allied LLC; an asset manager based in Osaka that promised a 5 percent return to all its investors. Things apparently went great for the first little while, but last November, the dividends ceased arriving and worried investors called the authorities. A raid at the Allied LLC headquarters failed to find any trace of the fund operators or the 2.4 billion yen (26.5 million USD) entrusted to its care.

Knowing the history of retail currency trading in Japan and the Mrs. Watanabe phenomenon, this scheme was clearly targeted at a specific group. So far, three hundred victims have contacted police, and hopefully, the funds can be recovered and the losses minimized but this is unlikely. It’s hard for most people to believe that there are those out there whose sole ambition is to take advantage of others but as we all brace for a difficult year ahead, be aware that those intent on stealing from others will be even more desperate.

About the Author

Scott Boyd has been working in and writing about the financial industry since the early 1990s. As a technical writer and project manager with several of Canada’s leading financial institutions, Scott has produced educational materials for investment system end-users including portfolio managers and traders. Scott now administers and contributes to OANDA FXPedia and regularly provides commentaries for the OANDA FXTrade website.

This article is for general information purposes only. It is not investment advice or a solicitation to buy or sell securities. Opinions are the author’s — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use apply.