By Guest Blogger Doug Rowat
Last week, I finished two-time Pulitzer Prize–winner John Carreyrou’s well-researched book Bad Blood: Secrets and Lies in a Silicon Valley Startup, which details the collapse of the now-famous blood-testing startup Theranos and the fall of its charismatic CEO Elizabeth Holmes.
As Carreyrou impressively documents, Holmes lies like a rug. Amongst the litany of cover ups that the company was accused of, perhaps the most amazing was its construction of an entirely fake laboratory in advance of a visit from then–Vice President Joe Biden. As an example of how well Holmes duped politicians, celebrities, rich investors and the public in general, Biden, after touring the fake lab, heaped praise on Holmes and then called the facility “the laboratory of the future.”
As the corruption details continued to emerge, Theranos’s valuation dropped from more than US$9 billion at its peak to less than zero in the span of just a few years. Holmes now faces fraud charges from the US government, which could see her serve 20 years in prison.
You may remember that I wrote last year about my interest in sports card collecting and I highlighted that it had become a big and profitable business. But, in one of life’s ironic moments, at the exact same time that I was reading Bad Blood, I was also witnessing the sports card hobby get rocked by its own massive fraud scandal.
At the heart of the fiasco is PWCC auctions, a hobby heavyweight that’s being accused of knowingly auctioning trimmed sports cards (trimming cards is a BIG no-no in the hobby). The company is also accused of shill bidding, which is a method of artificially inflating auction results.
Like Theranos, PWCC is now under investigation by the FBI and the story has gained so much traction that it’s made both the New York Times and the Washington Post:
https://www.nytimes.com/2019/06/14/your-money/sports-card-alteration-fraud.html
In unintended comedy, the company’s website still advertises trust and integrity as being “the bedrock of the PWCC marketplace.” No doubt poor Kenny Dryden wishes that they’d remove his old Canadiens goalie picture:
Source: PWCC
YouTubers have also nicely summarized what has rapidly become an unbelievable soap opera:
https://www.youtube.com/watch?v=CDGDjgt8Owk
Sadly, I knew that fraud was one of many risks for the hobby:
You also need to be fully aware of the risks of your investment. For instance, I know that sports card companies can easily disrupt the market by producing too much product. This is what happened in the mid-1990s when the sports card market was on life support due to oversupply. I’m also fully aware that fraud and counterfeiting are ongoing problems.
I also argued that any alternative investment, whether it be collections of whiskey, wine, coins, stamps, jewelry, movie posters, artwork, etc., must be kept to a small weighting of overall assets as most of these collectible markets are made up of close-knit communities where any scandal can send prices reeling.
When it comes to the bulk of your investments, I’ve also emphasized that the best overall protection against fraud is to own a balanced and global portfolio made up of fully diversified exchange traded funds (ETFs):
… management fraud and misconduct, or even just incompetence, doesn’t matter to ETF investors. Over-concentrated investors (or employees) who owned Enron, at its peak the fifth most valuable corporation in America, saw their investments devastated. It was made worse, of course, by the fact that [former Enron CEO Jeffery] Skilling was at the same time living it up in his Houston mansion. Broad-market ETF investors, meanwhile, felt barely a portfolio murmur and quickly moved on with their lives.
The chart below indicates the number of Bloomberg news stories mentioning the keyword “fraud” over time. As you can see, we’re in a relatively quiet period for fraud-related topics. This is not to say that fraud isn’t an issue—just ask Volkswagen, Wells Fargo or, for some Canadian context, SNC-Lavalin investors—but the overall fraud level is, to be fair, relatively low at the moment.
Bloomberg news stories with keyword ‘fraud’ – past 20 years
Source: Bloomberg
But everything moves in cycles. It’s only the calm before the next storm. So, reduce concentration risk and protect yourself from the next big fraud-cycle by owning ETFs. And own these ETFs across several different asset classes.
The best protection against fraud? Balance and diversification. After all, Enron only hurt those who owned too much of it.
Now excuse me while I check my Connor McDavid rookie cards for trimming.
Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.
60 comments ↓
I also argued that any alternative investment, whether it be collections of whiskey, wine, coins, stamps, jewelry, movie posters, artwork, etc., must be kept to a small weighting of overall assets as most of these collectible markets are made up of close-knit communities where any scandal can send prices reeling.
Yep, that original Da Vinci painting is just 0.01 % of my net worth…
As for the ‘fraud’ word use, that is interesting, there is always a plateau just before the thing hits the fan… We are at a plateau now….
Hi Doug,
You mentioned snc lavalin.
Is the alleged fraud damage proportionate to the drop in share price or is this investor sentiment overreaction to an otherwise solid company?
Thanks.
Quillette Duped by Left-Wing Hoaxer Posing as Communist Construction Worker
“Archie Carter,” who pretended to be a blue-collar member of the Democratic Socialists of America, says he set out to humiliate the conservative site with his error-riddled story.
Will Sommer
ast year, amidst the “Sokal Square” hoax, Quillette editor Claire Lehmann tweeted: “The fact that untrained outsiders can get hoax papers published should tell you something: they’re not real disciplines. This week: “The writer…said he wanted to turn the Sokal Squared hoax back on Quillette,” writes Will Sommer of a retraction from the magazine.
Updated 08.09.19 7:14AM ET / Published 08.09.19 12:35AM ET
https://retractionwatch.com/2019/08/10/weekend-reads-the-dark-side-of-tenure-video-game-gun-violence-retractions-data-fraud-in-the-drug-industry/#more-106243
I also argued that any alternative investment, whether it be collections of whiskey, wine, coins, stamps, jewelry, movie posters, artwork, etc., must be kept to a small weighting of overall assets as most of these collectible markets are made up of close-knit communities where any scandal can send prices reeling. – DR
—
I agree, i ve been watching secondary whiskey market on tare last couple of years. Bourbon that is in sporadically available in stores for 40-ish (high 20s in us) is selling in excess of 200 on secondary market. we call all thank social “influencers” for it, but by the looks of that influencing is slowly coming to an end…
My ass makes me 700k per yaer, best and wos example (brasilian instargram influencer, definiltly something to gargle and watch nypost video), or that tweet where someone aksed does anyone uses snapchat anymore some time ago ans snap goes all comatose…
Wrily interesting time we live in, but slowly all that siliconians are sending everyone to the deplorable side, slowly and shurely.
Than i am thinking why not just folow step buy step instructions…
banana brandy
https://youtu.be/LDtcRnIhzi8
(40min long)
malt single i guess
https://youtu.be/meB09jXHhRY
(1st out of 2, 2nd not published yet)
and on a side note yes i am signed for few bourbong lotteris around, for just in case, you never know, plus its free.
DEFINETLY PRESS PLAY ON THIS ONE
https://www.youtube.com/watch?v=UM0MFjBUgpo
I understand a jail cell has just recently opened up for Elizabeth Holmes.
I guess Bill Clinton, Prince Andrew and Alan Dershowitz, among others, can all sleep a bit better now.
Just like the Panama Papers…nothing for you to see here, carry on, look over there…a brown invasion!
Saw the Theranos story on TV several months ago.
Incredible what Holmes pulled off for so long, knowing full well Theranos would never deliver.
How do people like that look in the mirror as they’re brushing their teeth?
#2 Stealth on 08.10.19 at 3:06 pm
Hi Doug,
You mentioned snc lavalin.
Is the alleged fraud damage proportionate to the drop in share price or is this investor sentiment overreaction to an otherwise solid company?
Thanks.
—
Do I look like the lead RCMP investigator? The point of this post was to diversify away fraud risk not to look for entry points to invest in individual companies accused of it.
–Doug
The best way to prevent fraud is to learn to say no. It takes practice. No I won’t lend you money. No I won’t co-sign. No, I won’t sign. No I’m not interested. No, you can’t come in. No. Just no.
So Mr Epstein while on a suicide watch commits suicide, as they say second time is the charm. But of course all those conspiracy theorists are simply crazy
Freestyle Music Park opened in May 2009. Within months it was in a legal and financial quagmire, hit by dozens of lawsuits over copyright infringement and missed payments.
The South Carolina park was not Rappoport’s first ride.
https://www.occrp.org/en/troikalaundromat/american-amusement-park-finds-russian-money-the-wildest-ride-of-all
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“Bad Blood” is a great book. The most surprising thing to me about the Theranos fraud was the caliber of people Elizabeth Holmes fooled.
Henry Kissenger who was Richard Nixon’s Secretary of State and George Shultz another former Secretary of State and James Mattis (Defence) were on the board of directors.
“the overall fraud level is, to be fair, relatively low at the moment”
All public companies manipulate their reported earnings through accounting tricks, which only become fraud when the SEC cottons on.
I would make a terrible Scotch collector. It would go down well though .
That’s got to be one of the weakest blog post I have read here in a long time.
Relevancy? Buy a etf with thousands of company so you don’t get hurt much if one is fake??
okie dokie….
#9 David Procop – Its already been proven that it wasn’t a suicide at all, and I did it first based upon the facts. Others are following my methodology now.
#15 mark
Ask for a refund.
#118 Shawn Allen
Return on equity??? Read Buffett.
—————————————
I don`t and won`t read Buffet. I boycott Buffet. Read up on Leamington
Ontario and see what your cult hero is all about.
Interestingly, Enron didn’t deliberately mislead anyone, they just created such an complicated rats-nest of finances that even their accountants couldn’t sort it out. Illegality happened after they realized the extent of the disaster and destroyed documents and committed other nefarious acts. Malcolm Gladwell wrote in depth about the situation if anyone’s interested.
WorldCom, Theranos, Volkswagen were all deliberate fraud.
#15 mark on 08.10.19 at 6:45 pm
Lamest comment ever. Congrats, first amongst fools.
Bre-X was another bad fraud back in the day.
Holmes got away with it for so long because she was an attractive woman (duped men) and a feminist cause celebre (duped women).
Easy peasy.
#2 Stealth on 08.10.19 at 3:06 pm
Hi Doug,
You mentioned snc lavalin.
Is the alleged fraud damage proportionate to the drop in share price or is this investor sentiment overreaction to an otherwise solid company?
Thanks.
—
Do I look like the lead RCMP investigator? The point of this post was to diversify away fraud risk not to look for entry points to invest in individual companies accused of it.
–Doug
Hi Doug,
To answer your very specific question, no you don’t look like an rcmp lead investigator. Some people may think that since your picture is located in the south west corner of the mug shot of Bernie with identification numbers and all. If another artificial intelligence engine was combing this site like the one Garth wrote about few days ago may deduce that based on the correlations and positions of both pictures. Probably not.
I understand the point of the post and no individual stocks. Many fine , educated and qualified Canadians still work there and I hope that things turn out alright.
Thanks.
As much as there is fraudulent news, claims, total psychopaths in the financial sector and all; and I mean all; the internet is a blessing. It allows the one’s that really that can read between the lines and allow us to be educated with like mind posters, educators, and so forth.
This blog is a blessing along with many others out there that are doing the same thing. It is about time!! Hopefully we can all put our minds together and create what we deserve.
Also checkout the podcast “The Dropout, the Rise and Fall of Elizabeth Holmes Thernaos”. George Shultz’s Grandson attempted to blow the whistle on Elizabeth, huge family fallout hundreds of thousands spent on legal bills for the younger Schulz.
Buffett and Leamington
#18 Doghouse Dweller on 08.10.19 at 7:44 pm
#118 Shawn Allen
Return on equity??? Read Buffett.
—————————————
I don`t and won`t read Buffet. I boycott Buffet. Read up on Leamington
Ontario and see what your cult hero is all about.
**********************************
It’s understandable to be angry about Leamington.
Every corporate down-sizing has its victims.
Buffett first dealt with this when he had to face closing the textile Mills that were Berkshire’s only business when he bought it in 1965. He kept much of those mills running for about a 15 years but there was no hope. He was sorry to see these people let go. He said many of them were middle aged women who only spoke Portuguese. There was little hope of new jobs for them.
Buffett since about 1970 always tries to buy already lean organizations. He does not buy a company and then cut expenses. But he has explained that is how 3G does things. I can point you to the annual letter where he explained this if you wish.
Of course Buffett had personally zero to do with Leamington as he was not in charge of Heinz nor a majority owner. (He was I believe then on the Heinz Board but it is doubtful that closure came to the Board or that he would see it as his role to vote against management on that point)
If you want to refuse to read the words of one of the very greatest businessmen and investors in history that is likely to hurt you and not be noticed by him or Berkshire.
I can lead you to the fountain of business wisdom. But I can’t make you drink from it.
Thanks for the portfolio checkup/tuneup post. Question- Anyone owning TSE based preferred shares or big cap Canadian equities will be very heavy weight in RBC, TD, Enbridge, TransCanada and Manulife. To the best of my knowledge almost all ETFs will have a good 25 to 30% concentration in these names.
Is there a way to reduce concentration risk in these companies?
Bre-X
#21 S.Bby on 08.10.19 at 8:12 pm
Bre-X was another bad fraud back in the day.
**********************
I remember everyone was buying shares. The girl who cut my hair had shares. Then that guy (was it Degusman) jumped/fell out of the helicopter after the story started to fall apart.
While Bre-X was still soaring I bought shares in Bema Gold. My first and last gold shares. Soon noticed they reported losses every quarter. I found that weird. I got out. None too soon.
#26 Shawn Allen on 08.10.19 at 9:03 pm
Buffett and Leamington
#18 Doghouse Dweller on 08.10.19 at 7:44 pm
#118 Shawn Allen
Return on equity??? Read Buffett.
—————————————
I don`t and won`t read Buffet. I boycott Buffet. Read up on Leamington
Ontario and see what your cult hero is all about.
**********************************
If you want to refuse to read the words of one of the very greatest businessmen and investors in history that is likely to hurt you and not be noticed by him or Berkshire.
I can lead you to the fountain of business wisdom. But I can’t make you drink from it.
————————————————
What Shawn said.
Surprisingly many people deliberately choose ignorance and take a perverse pride in doing so.
Smoking Man, came across this and?? Check it out!
https://www.youtube.com/watch?v=Gz2GVlQkn4Q&list=PLLlNd_g1FZAvayYVXDr-KLV0UiDF4zlKu
#27 mrnick on 08.10.19 at 9:05 pm
Thanks for the portfolio checkup/tuneup post. Question- Anyone owning TSE based preferred shares or big cap Canadian equities will be very heavy weight in RBC, TD, Enbridge, TransCanada and Manulife. To the best of my knowledge almost all ETFs will have a good 25 to 30% concentration in these names.
Is there a way to reduce concentration risk in these companies?
———————————————
Yes, many ways.
In reading your comment, though, I sense your knowledge base isn’t as deep as it should be to comfortably invest on your own. Look into portfolio allocation in as much detail as you have time for.
Garth is the one with the hat! :)
https://www.youtube.com/watch?v=B9FzVhw8_bY&list=RDGz2GVlQkn4Q&index=8
#9 David Prokop on 08.10.19 at 5:34 pm
So Mr Epstein while on a suicide watch commits suicide, as they say second time is the charm. But of course all those conspiracy theorists are simply crazy
————
#trumpbodycount
I wonder what Epstein had on Trump? Probably enough to put him behind bars and end his illegitimate presidency. How convenient for Trump that the Russians were able to arrange for Epstein’s demise.
The walls are closing in on Trump… impeachment soon.
Targeted brainwashing and propaganda + deliberate misleading, combined with outright lies, if that is not fraud I don’t know what is.
Greedy bankers and aggressive real estate industry looking to justify the economic wasteland they helped created with imaginary ‘wealth’ and economic boom, /the whole 1 % of ‘growth’ at zero rates and roaring inflation of necessities.
https://ca.finance.yahoo.com/news/canadas-tech-boom-factory-slump-163247173.html
https://www.huffingtonpost.ca/2018/07/24/toronto-best-city-tech-jobs_a_23488711/
https://www.huffingtonpost.ca/entry/mortgage-rates-canada_ca_5d4f3cebe4b0fd2733f13dca?ncid=other_trending_qeesnbnu0l8&utm_campaign=trending
That while transfer of wealth/pure theft from savers and retirees, employees to debt junkies facilitated by
ignorance and greed continues unabated.
It takes quite a courage to represent impoverishment – rent and debt crisis as wealth but hey, you are dealing with professional lairs.
https://www.bnnbloomberg.ca/payday-loan-use-among-ontario-s-insolvent-borrowers-on-the-rise-study-1.997211
https://www.huffingtonpost.ca/2019/05/04/canada-housing-crisis-solutions_a_23721633/
#33 Resist on 08.10.19 at 10:42 pm
#9 David Prokop on 08.10.19 at 5:34 pm
So Mr Epstein while on a suicide watch commits suicide, as they say second time is the charm. But of course all those conspiracy theorists are simply crazy
————
The walls are closing in on Trump… impeachment soon.
——————————–+
When have we heard Trump is done before? Oh right- weekly. So far it’s all been a big nothingburger.
But maybe you’re somehow better informed than everyone else?
The question is whether you’ll admit you were wrong or just move on to the next ‘impeachment is imminent’ story. Give it up. It’s another country for crying out loud.
DELETED
If a civil war brakes out in the USA.
Libtards are doomed. They never rode a motorcycle with our a helmet.
Hi Doug:
Why is the GF brain-trust so anti-gold?
My gold miner ETF (representing 5% of my portfolio) is now up 60% year on year.
It has served as a very useful buffer to recent volatility.
Thanks,
Steve.
3 things that tell the truth..
Drunks
Kids
Yoga pants
Wow, I’ve owned a stock since $9, today in the mid $20’s, that has paid a 6++ % dividend , paid monthly. Due to an amazing corporate announcement I’ve arbitraged a long position. Risky, not at all, not with a $30 offer on the table. Of course it can’t be disclosed publicly on this site, but Wow, they’re out there. Just licking up the gravy boyzzzzzz, sucking it up.
Trump Hate is your worst enemy.
Good article. I have been watching the values of many collectibles fall over the past three or four years. Coins, stamps, hobby kits, watches, sport cards…etc. Astute collectors and dealers are still doing OK but working a little harder to stay in the black.
Demographics are certainly part of it as postage stamps or pocket watches are not so desirable to those who grew up never seeing them except in old movies. Some would rather spend their dough at their favorite coffee shop or new “I” phone but I suspect those are not selling like they did a few years ago.
Without getting too wordy ….there seems to be a general decline in disposable income. I know this is anecdotal but I have a big sample to draw on. Considering how well they keep telling us how the economy is doing I am struggling with cognitive dissonance at this point. Things are clearly not as rosy in the general economy as we are being led to believe.
Back in the day when I flip middle finger to teachers.
https://youtu.be/JRfuAukYTKg
https://ca.finance.yahoo.com/news/depositors-next-nordic-banks-buckle-040000314.html
Banks to pass negative interest rates on savings to customers.
It was way overdue. Remember: there is no inflation folks. These savings are worth more and more every day so you have to pay for it./that was sarcasm.
What would be the government stand on this: capital losses/deductibles? Just joking, of course not. You are on you own savers and retirees.
Is this why bitcoin and gold suddenly spiked?
It seems zero or negative interest rates are pretty much guaranteed for the next decade – decade and a half. Combine that with stellar inflation.. Oops, suddenly you have to sell assets to support the aggressively ever increasing cost of living, fees and taxes.
What isn’t a fraud these days. The whole financial market is a fraud. Buying back shares goosing prices devaluing currency cooking earnings. All one big fraud. And we’re told to invest in it. Btw summer is almost over. 7 months of frigid ice cold and snow soon.
Kinda like Bitcoin. History will show after it’s collapse that this Ponzi was not unlike sports cards, blood tests, or tulips.
There is always a sucker
If true the destruction of our economy is but a short time away
Denmark’s 3rd largest bank offers negative rate mortgages
https://www.zerohedge.com/news/2019-08-10/denmarks-3rd-largest-bank-now-paying-people-take-out-mortgage
@#2 Stealth
“…or is this investor sentiment overreaction to an otherwise solid company?”
++++
You were joking right?
End of cycle scams like Madoff only come to light after everyone has been fleeced.
ETFs or mutual funds really work until everyone tries to exit their trade.
Then we find when we call because our online request to sell is met with a call center at our bank saying
“Umm I’ll get back to you”
It happened to me in 2008 when I tried to sell a big 3 cdn bank money market fund.
Lesson learned.
I take my shares in actual share certificates now. Yeah it’s a hassle but at least I am the intermediary.
In all late cycles your intermediary is your weak point.
@#88 Ponzie Platitudes
“Good one.
Did you hear about Transit Executives getting a 30% increase?”
++++
No.
But let me guess.
These public “servants” voted themselves the increase.
My how convenient.
I have an idea that would win any politician re-election.
They should all be fired.
#43 Stan Brooks
There are financial and political reasons for gold and Bitcoin rising.
Gold is rising because people are realizing after 10 years of QE has failed. Central banks are trapped and negative rates are designed to save broke govts and corporatesb who listened to economists to take on debt because it was cheap money.
They can’t inflate their way out of debts so they have to make debt free or worse negative.
Also the Chinese are buying Bitcoin and gold to get around capital controls.
This is why real estate agents are fielding 1000’s of calls from Hong Kong and Mainland people fleeing….
China is in serious trouble.
Hong Kong is self destructing.
I am not a gold bug, but I own it.
Always have.
It is insurance not an investment.
IMHO
Apparently Mr Epstein’s attempted suicide a few weeks ago and his failure to secure bail wasnt enough for officials to insist he remain on “suicide watch”…..
https://www.nytimes.com/2019/08/10/nyregion/jeffrey-epstein-suicide-watch.html?action=click&module=Top%20Stories&pgtype=Homepage
Dead men dont tell tales.
Maybe fraud is actually at an all time high but enforcement at an all time low. Canada has been flagged by several international organizations for its lax tax/money laundering/real estate regulations. Wait for a big story there in the coming years
#50 expat
“I am not a gold bug, but I own it. It is insurance not an investment.”
A very good phrase that most people should pay attention to.
The Chinese, Russians (plus many other governments) cannot all be wrong. They are not ‘Gold Bugs’ but have noticed the many trillions in derivatives and have decided that this cannot end well.
I think it’s time to watch what the really big players are doing.
#45 expat on 08.11.19 at 7:59 am
Kinda like Bitcoin. History will show after it’s collapse that this Ponzi was not unlike sports cards, blood tests, or tulips.
There is always a sucker
—
Anyone can be a “sucker” when it comes to fraud. If you saw a cheaper blood test available at Walgreen’s, a Fortune 500 company that’s been around for more than 100 years, you would have opted for it too.
–Doug
Anyone can be a “sucker” when it comes to fraud. If you saw a cheaper blood test available at Walgreen’s, a Fortune 500 company that’s been around for more than 100 years, you would have opted for it too.
–Doug
————–
A hurray for public health care.
Thank you Tommy Douglas
#41 Jaxville
Things are clearly not as rosy in the general economy as we are being led to believe.
——————————————————————
Especially where you are, right, where a nice home can be had for around $250,000? What are your thoughts on silver at this time? We are now above the high of spring 2008 again in CAD when our dollar was at par.
#28 Shawn Allen
The plant closure is not the point. The point is the “Greed is Good” and nothing else matters but Buffett`s bank account value proposition.
The Berkshire cult and the Jim Jones of finance : Willing to render destitute an honest hard working farming community and feed your children counterfeit putrid third world tomato paste juice.
Drink from this monopolist fountain of business wisdom at your own risk.
Hi Ronaldo ….Indeed, houses have become very affordable here. I suspect they will be even more affordable this time next year.
Silver is looking very promising for at least a 70% gain before a serious correction. Over the longer term silver is certain to provide a wild roller coaster ride. I know well over a dozen people with a tonne or more. Many of them are very stale longs looking for an exit with dignity.
Back in 2011 there was such profit taking that North American refineries stopped buying as their inventories grew. That happened at the same time the Silver Users Association told their members to not purchase as they forecast a drop in price.
Point is that there is a huge amount of silver in the hands of the public at least in Western nations. That supply will have to find new hands and it won’t be a smooth transition.
For now there is little public demand as we are buying enough from the public to meet retail demand. Mints and other producers of retail size bullion have reduced production and when public demand returns there will be horrendous shortages.
I see much higher prices in the years ahead but a gut wrenching ride to get there.
#58 Jaxville
Thanks a lot for the feedback. Will drop by for a visit next time up your way. My son is a regular customer of yours. I will tell you of my experience with Ag.
It is central banks pushing down interest rates like the Bank of Canada buying $500 million Canada bonds just last week. Call a spade a spade.