Having graduated from the University of Life with a First Class Honors Degree in Hindsight, I am not averse to having a little bout of 'told you so'. Today we hear of another chap being arrested for alleged dodgy dealings.Our modern day Sun Tzu, Warren Buffet said "It is only when the tide goes out that you can see who has been swimming naked".
Like the Emperor in Hans Christian Anderson's 'The Emperors New Clothes' Bernie Madoff managed to convince all around him that if they didn't believe the performance and legitimacy of his business they were stupid or unworthy of their position. The regulators fell for it, as did a lot of other high powered people. The tide went out on Bernie several times but his nakedness was ignored. Unfortunately for him the tide receded again, big time, and there were plenty of people shouting "But he has nothing on!
Unfortunately for Terry Freeman, a director of GFX Capital in London, his 'invisible clothes' have been flagged and he has been arrested by police investigating a £40 million fraud.
The ironically named 'Freeman', a foreign exchange trader, was arrested at his home in Buckhurst Hill, Essex, on Monday by detectives from the City of London Police Economic Crime Department. His home and offices were searched and large quantities of documentation were taken away for analysis. Mr Freeman was released on police bail after questioning.
The City of London force has appealed to investors in the firm, which had offices in Leadenhall and Moorgate, to come forward if they had concerns. It is understood the company recently stopped trading.
A police spokesman said officers were investigating suspected money laundering and offences under the Financial Services and Markets Act.
One source said: "This is a very fast-moving inquiry and we don't expect the dust to settle for a few weeks. Only then will we have a clear picture of what has been going on."
Police sources said they were investigating claims that GFX was running a Ponzi fund — a scam that appears to be succeeding wildly by paying supposed returns out of victims' own capital.
Detective Chief Superintendent Steve Head, of City of London police, said that his force had detected a marked rise in financial crime as the recession deepened.
Mr Head said: "There is no doubt in my mind that the present economic situation has led to this rise in reporting [of fraud].
"Most fraud is discovered internally by businesses, but historically I believe only a fraction of those crimes have been reported to the police. Time will tell if we are experiencing two rare positive effects of the economic climate: not only are procedures to prevent and detect fraud being tightened, but victims have a greater confidence to report suspects to the police."
Mr Freeman had a blog which gave updates and allowed comments from investors, some of these comments are reminiscent of how people described their dealings with Madoff before things went bad:
"I can only speak for myself but I can say that I am ecstatic about what you are doing with my money and can only thank you for giving my husband and I the chance to take part. You have our full support whatever you do".
"I haven't posted before, but I would like to reiterate the praise given about Terry's brilliant work. This fx investment is the only shining light in the current mood of economic gloom and has yielded quite extraordinary returns".
"Having met you on a couple of occasions, we have come to the conclusion you are a man that we trust implicitly and that you obviously know exactly what you are doing with regards to the investments".
"I like most others trust you implicitly, and I also agree with everybody on the blog that your results and strategy are excellent."
I sincerely hope, for the people that posted the above comments, that this all turns out to be a mistake and that funds can be returned to clients of Mr Freeman, but the police having arrested Mr Freeman is not a good sign. There were also some issues from investors who were getting worried. Mr Freeman even looked to give comfort after the Madoff situation hit the news:
"I have phoned round and can confirm that this news does not affect GFX, its custodian bankers, or any of the Swiss Banks with whom we trade".
And, perhaps prophetically he said:
"The news is another glowing testament to our decision to base our trading operations in Switzerland, where the financial regulations are as tight as a well-wound Swiss watch!"
Many of the comments on the blog have been removed or redirected but the last post on the 9th January said:
"We must not allow the Diary to become a forum for individual grievances and negative comments, even in some cases abuse of our staff which can never be acceptable. That is not to say that we are not taking your comments seriously, but we view the Diary as a valuable communications tool".
Comments were beginning to be made on the lack of info coming from the company:
"Firstly why not give an indication of ballpark trading results good or bad with a clear indication that the figures are not final and could be subject to change. We are grown up and some information is better than none"
"...any sort of communication is better than none"
"I do not believe that it is being negative to ask for some honest communication from people when we have invested with you."
"Terry, Can you confirm if you are in fact trading? Admin has advised me not to fund my new account until further notice as they are too busy at the moment".
I post the above comments not as a judgment of Mr Freeman or his investment fund, in my book a man is innocent until proven guilty and I do not subscribe to the Kangaroo Court of the web. I post these comments because they are strikingly similar to those that I have seen in the Madoff case.
The most telling being "thank you for giving my husband and I the chance to take part". This was almost a word for word account from an investor in Madoff. He made it so that people were grateful to be just included.
Again we make no judgment on the issue and have seen, many times before, a storm of publicity surrounding an investment vehicle being some sort of scheme, when the issue turns out to be misreported very little press covers that point. If this turns out to be one of those times then we will happily report so but, as is so often the case, the mere reporting of impropriety causes the destruction of investor value.
Madoff was clearly a different case in that he admitted from the time he was arrested that it was a Ponzi scheme, for the sake of investors with GFX through Mr Freeman, I hope this turns out to be one of those occasions where all is not as it seems from the reports in the press.
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