Financial Horror Stories Vol. 4, Grave Financial Robbing

0:00Have you ever thought about what would happen if your airline window popped out? or if you could build a jetpack using only machine guns. Turns out you can, but you really shouldn't. Hi, I'm Jill Chacha, host of a podcast that's for weird people who like learning about weird stuff. It's called Well, That's Interesting, and it's a comedy science-y show that tells the story behind the facts because, as it turns out, those stories are funny. The facts are bizarre, the stories are epic, and the laughter is plentiful. So, join the flock and listen to Well, That's Interesting wherever you do podcasts.

0:33There's that memorable opening scene from Twilight Zone, the movie. Two guys telling each other scary stories. Do you remember it? One of those two is Dan Aykroyd. And check it, the other is Albert Brooks driving down a rainy highway at night. Hey man, you want to hear something scary? He tells his buddy in the car. A scary story. Makes a scary observation. Then his buddy thinks about it for a moment. raining, going down the highway, chirps back, yeah, that was scary, but you want to hear something scarier? Eventually, it gets to a point where they say, you want to hear something really scary?

1:15He pulls the car over, and well, I won't give away the ending. Although seeing it as a kid, the year was 1983, I guess I was 17. That's the last time I've seen that movie. Indeed, I did find that ending to that scene was really scary. Well, I'm not Albert Brooks and I don't have Dan Aykroyd this week, but I've got the next best thing. The Motley Fool's Robert Brokamp, longtime retirement expert and storyteller extraordinaire. And it is the scary month of the year, which means in what is becoming a rule breaker investing tradition, I have the Motley Fool's retirement expert, Robert Brokamp, to tell some really scary stories.

1:53Now we're a money podcast as you might expect. So what scares us are financial horror stories. Financial Horror Stories, Volume 4, only on this week's Rule Breaker Investing. It's the Rule Breaker Investing Podcast with Motley Fool co-founder David Gardner.

2:16And welcome back to Rule Breaker Investing. It is, yeah, it's getting scary. It's getting scarier. We're approaching one of everybody's favorite holidays of every year, it seems. It does seem as if Halloween starts a little earlier every year, the decorations. I start seeing people's skeletons and zombies. Some of them are animated these days out in their front yards. It's like early September, which means next year it'll be late August. And I'm not sure in time if you play it forward. It's just Halloween all the time in the United States of America and wherever you are since about a fifth of our listeners are outside the US.

2:53Welcome to Financial Horror Stories, Volume 4. I'm really chuffed to be joined once again by my good friend and longtime fellow fool, Robert Brokamp. Robert has promised again, I think it's going to be another half dozen financial scary horror stories. And that is the focus this time of year, every year on this podcast. I do want to mention next week, it is the Rule Breaker Investing Mailbag. Our mailing address is rbiatfool.com. You can tweet us on Twitter X at RBI Podcast, featuring your stories, best questions, thoughts, scary thoughts are welcome. Scary stories to next week's mailbag, right early, right often, rbiatfool.com.

3:37Okay. Now, before I welcome Robert on, I think you need to know two things. The first is that all of our stories on this podcast and really all the other episodes in this podcast, this is the fourth. So that means we're about to go over 20 stories if you add them all up. And all of them are true. So, you know, it's one thing to make up a Twilight Zone story and make it really scary. But isn't it even scarier really when you think about it, when it's real and when it's true? So that's the first thing you need to know. These are true. The second thing is We're not just here to scare you. Robert always brings along with him a takeaway or two to help us all get a little smarter, happier and richer, which is, after all, the purpose of The Motley Fool, not just to scare you this time of year on this podcast.

4:26So a couple of preamble notes. I also want to flash out that my talented world-class producer, Bart Shannon, will be listening carefully to each of the stories you're about to hear. In fact, I'm going to ask Robert Nesek to share his table of contents up front so that Bart, as he's listening along and planning the post-production for this podcast, so he can have the appropriate bespoke sound effect for you, our listeners, that will evocatively lock down that story forever in your minds thanks to the sound effect that he brings to that story. So Bart, listen carefully. And Robert Brokamp, welcome back to Rule Breaker Investing.

5:06Holy shaving cream. It's so great to be back, David. It's great to have you back, my friend. And you just heard me promise, I think the same thing I promise this time every year, Robert, which is, well, first of all, how many stories have you brought? I've brought six. Excellent. And do you have titles for those stories? Here we go. Number one, it's the Chimera of Omaha. Number two, the Vanguard vanishing. Number three, Helter Shelter. Number four, Invasion of the Crypto Snatchers. Number five, I Know What You Signed Last Century. And number six, A Nightmare on Margaritaville Street. excellent i will say i listened back to our last year's talk together our financial scary stories and you kind of left us on a positive note a happy ending robert yeah i'm not sure this is going to be quite so happy but there's a lesson there's a lesson that will make your life better so yeah okay we'll say that's a happy ending all right well without further ado i think story number one Robert is entitled the chimera of Omaha.

6:13Yes, well, you know, we here at the Motley Fool love a good Warren Buffett quote. When we had an office, we had a Buffett quote written on one of the walls and an entire room named in Buffett's honor. What's even better than a Buffett quote? Buffett himself telling you about a great investment opportunity, fantastic returns. All you have to do is buy a certain stock or even better, go to this website and buy the investment there. But unfortunately, once you transfer some money, it disappears as quickly as a box of seized candy at a Berkshire annual meeting because that wasn't Warren Buffett giving you investment advice.

6:46It was a fake AI generated video. And the scammers made off with your money. Or it may have been just a version of the classic pump and dump, right? The scammers buy a small, thinly traded stock. They created some hype to cause the price to go up, and then they get out near the top. During the 2024 Berkshire Hathaway annual meeting, Buffett talked about seeing some AI-generated videos of himself and said he didn't think his wife and daughter could tell the difference, that it wasn't actually him. He said, actually, if he were interested in investing in scamming, AI is going to be the growth industry of all time.

7:19And the videos aren't just of Buffett, right? These are being done with all kinds of executives and celebrities, a fake video of Elon Musk promoting a scam that netted ne 'er-do-wells millions of dollars. One person who fell for it was an 82-year-old retiree named Steve Beauchamp, who told the New York Times, quote, I mean the picture of him. It was him. End of quote. Mr. Beauchamp liquidated his$690 ,000 retirement account and invested in this deepfake Elon Musk cryptocurrency scam. So, you know, some of these videos are of celebrities announcing a giveaway. Others, they're selling something.

7:52There's a deepfake video of Taylor Swift giving away cookware. And of course, you go to the website, you give some information. They either use that information to rip you off, or when you click on that website, it takes you to a place that then installs some sort of malware onto your computer. And of course, there's the more targeted deepfakes. For example, grandchildren reaching out to their grandparents saying that they've been in an accident and they need some money to be sent to them immediately. So this is obviously something that all of us have heard about for a while. And as you're pointing out, this basic scam, Robert, before it was deep fake videos, it was telephone voicemails maybe.

8:29And before that, it might have been in a chat room online or maybe just good old fashioned snail mail. This probably is never really going to end because the human instinct to swindle somebody else probably will never go away. Deep fake videos, though, a lot more persuasive than a snail mail, cheesy snail mail letter. Yes. I think that the lesson here is there used to be the saying, trust but verify. I think nowadays it basically is don't trust, always verify with at least three sources. Because it's just going to be too easy to fake voices, to fake videos, to fake communications. So before you do anything, especially related to money or your personal information, confirm, confirm, confirm that the person is who they say they are.

9:15Yeah. And one of the most basic things, and I occasionally see this when a bank gets deep faked, is they'll always say, make sure you call us at the bank. Like, if you thought we left you a voicemail and it seemed a little strange, or if you got something in the mail supposedly from our bank and it didn't look like our logo, just always check with us first because we know what we've issued and we can tell you whether it's from us or not. So you're saying check three times. That would be my first check. Right. And don't use the phone number that's in the email or text. Don't click on the link that's in an email or text.

9:51Go directly to the bank's website, your broker's website, whomever, or use a number that you know is accurate. Another thing to be aware of is what these scams often do is send you somewhere private, like, for example, WhatsApp, Telegram, maybe even a private YouTube channel. That's a pretty bad sign. And thank you for that. And, Robert, have you yourself ever been deep faked? I have not. But my wife, back in the early days of the internet, did fall for a scam where she received an email that she thought was from our bank, clicked on it, entered some information, and money was stolen and sent to Italy.

10:28And it got us on the Today Show back in the early 2000s. Oh, my golly. I forgot. I forgot that. That's remarkable. You did lightly reference something that's meaningful for us at The Motley Fool, which is that as a company that has now gone pretty much fully virtual, our office space, a little scary for some of us, our office space is disappearing altogether. So we're still the Motley Fool. We still have several hundred employees, but we're all kind of in different places now without a central meeting place. And that is a change that I think in a lot of ways, COVID tipped off for many different organizations.

11:06I think a lot of organizations are trying to figure out what to make of their commercial space. Downtown Washington, D.C., just within sight of Full HQ, remains pretty quiet in a lot of ways. A lot of white-collar jobs can be done at home. You and I are doing this podcast from our respective homes. Yours is a more attractive looking background than mine. You clearly play the guitar. Robert, I see you have what looks like a Santa Claus jester cap on one of your shelves behind you. I would say even your shelves are sort of organized, I think you're doing a better job working from home than I am.

11:39I don't think that's true at all. I'm just sitting here in my basement. I've been to your house. Your house is lovely. Plus, I have tons of games, which is a lot more fun than what I have. But you know, the other thing you mentioned working remotely, some of these scams are communications coming from executives in your company. We here at the Miley Fool have received emails that have come from you or Tom, your brother, our CEO, saying, I'm reaching out to you for this or this or this. So that does make it easier to do that when you're not in the same building as the CEO. Really great point. All right.

12:12Any other takeaways, Robert, or are we moving on? I think we hit the highlights. The other thing that people are recommending, especially with the personal situations, or if you are an executive talking to other executives, is if you get a call that's a little fishy, ask for information that only that person would know and couldn't be pulled from social media. Like, so don't ask for your dog's name if you have all kinds of posts of your dog on Facebook. And if you're really concerned about it, having a password ahead of time. So if you get a call and it seems that you say, all right, what's the password?

12:43Just to make sure. All right, ready for everything. Thank you. Let's move on to story number two. You have entitled it, The Vanguard Vanishing.

13:00Yes, imagine that you have settled in before your computer and you log into your wife's Roth IRA. Unfortunately, it has dropped in value. And I mean, really dropped because$120 ,000 worth of investments is missing. That, according to a New York Times article, is what happened to Tien Tran when he checked in on his wife's IRA at Vanguard. But the investments weren't gone for good because Mr. Tran discovered the scam in time. The investments were actually sitting in an IRA at Merrill Lynch. What happened is the scammers opened up an IRA in his wife's name at Merrill Lynch and then requested that the investments be rolled over via what is known as the Automated Customer Account Transfer Service, otherwise known as ACATS, which is the system that firms use to move money and investments between one another.

13:47Fortunately, this reader discovered the crime soon enough and the investments were returned within a week. Unfortunately, this type of ACATS fraud is on the rise because the truth is it doesn't take that much to open a new account online. It doesn't require a credit check and freezing your credit won't prevent it. Now to request a transfer from another account, the scammer has to know enough information about the person and sometimes some information about the investments, which can be done through maybe some sort of security breach or just grabbing a statement out of the mailbox or the garbage.

14:17The transferring firm may or may not send a notification that there's been a request for a transfer. And even if they do, account holders often don't really read it because of all the email and the snail mail that we get. Yeah. And you know, this is kind of a brilliant move and it does make sense why it would work because companies want us to open up new accounts. And generally we want to open up new accounts. Companies don't want us to close accounts. And so setting things up in a world where more accounts are opening for people that are not real, there's not a lot of pushback against that. We've all done it, right?

14:53We've all opened up accounts very easily online. Many companies make money that way. We at Motley Fool have a whole website dedicated to helping you open accounts, choose credit cards. It's a great service. You should be choosing the best accounts and credit cards for you. But they also do want to make it easy for you to open those accounts. And that the transfer is so easy is really quite remarkable. I guess it sort of gets back to what we talked about earlier and that they're just, we're all working remotely. We're all doing things remotely. You don't have to go into a bank or the local Schwab or Fidelity office to do the transfer.

15:27You have to provide some form of ID. But as we talked about in last year's episodes, it's actually pretty easy to create a fake ID and take a picture of it and send it to somebody. And they're like, okay, you must be who you say you are. Yeah. And the reality is that 99 point, I'm going to go with 8 % of every account open today worldwide, and there were a lot, were all legit. Most people are good people just trying to do the right thing. But it is the trickle of bad people that can magnify their trickle through technology that starts messing with systems like ACATS, an acronym that otherwise I never would have been able to explain or understand.

16:08But Robert, that's part of the reason I love having you for this episode every year. And I'm curious, was this story in the New York Times? Yes, very recently, the New York Times. So are you like keeping your eyes out, waiting, just chomping at the bit each second to last Wednesday of October to come back on this, to share your voluminous reading and what you found? Is that how it works? Every year I create a document and throughout the year, David, I put in ideas for this show. So even though we're only talking about six, I probably had about 30 to choose from, but I just chose the ones that I think are the most interesting and slightly different.

16:44As we talked about before the show, the stories change, but the lessons are often the same, especially when it comes to these types of scams. It's protecting your information, protecting your identity, and being very careful about any sort of indication that something is amiss, right? So in this example, people do get notices in the mail that something is going on with their accounts, but they throw it away. And it may have been from a firm that they don't have any business with. So they think, oh, it's just a solicitation. But actually it was the firm saying like, oh yeah, thanks for opening an account with us.

17:17But you didn't, of course, you weren't the person who actually opened the account, but you didn't open that letter. All right. Well, you source the stories from many different sources, but the alluring alliterative titles come solely from the mind of Robert Brokamp. Let's move on to story number three. He's entitled it Helter Shelter.

17:46There's an old saying in the investment world, and that saying is, it's not what you make, it's what you keep. In other words, Uncle Sam will often take a bite of what your investments earn. So many investors will take steps to reduce their tax bills, even paying professionals to help them. But sometimes the cure is worse than the disease. Which brings us to the story of Florida-based financial advisor Stephen Mellinger, who was sentenced to eight years in prison earlier this year for stealing clients' money and orchestrating an illegal tax shelter over a 10-year period. Basically, Mellinger helped clients claim$106 million in fraudulent tax deductions through what the authorities called a circular money flow disguised as legitimate royalty payments while collecting$3 million in fees along the way for himself and a relative who was a co-conspirator.

18:34So basically, this is how it worked. Clients would transfer money to accounts controlled by Mellinger, and they would be able to write them off as business expenses. and then Mellinger would put that money in accounts that were controlled by the clients. So basically, they were saying they were spending this money taking the deduction, but they still had control of the money, ultimately cost the IRS, which of course really cost taxpayers, $37 million and lost revenue. Now, many of these clients were owners of what are called compound pharmacies, which are basically they fulfill custom-made prescriptions, something that I didn't know existed until I learned about this story.

19:11But after some of Mellinger's clients told him that they were under investigation for healthcare fraud, as well as the IRS taking a look at these tax shelters. Mellinger basically stole some of their money that was in these accounts, using part of it to buy a house in Florida. Mellinger and his relative didn't ask the loan. A CPA in Indiana was sentenced to three years in prison for helping file the fraudulent tax returns. So it feels like there are no heroes in this one. Whenever I watch a new streaming series with my wife, Margaret, it largely comes down to this. Is there someone she can root for?

19:48If it's some slightly dystopian, funny story like Breaking Bad, and she can't really find anyone to root for, she ends up not watching it. And then I end up not really watching it, though I did finish Breaking Bad, because I want to watch shows with her. I'm not going to sit there and just binge myself. So I'm looking for the hero here. What I'm seeing is clearly Mellinger is a villain, But it does also seem as if his clients were aware. Did I hear this right? They were benefiting from something that they were aware was illegal. Well, that's an interesting question. So I tried to do some research on what happened to them, and I couldn't find anything about that.

20:27So I do think that it certainly was fishy, right? And so that's one of the takeaways here. if you are participating in anything that feels fishy tax-wise, you definitely want to get a second or a third opinion. Because I talked about what happened to Mellinger and the CPA. I'm sure that these clients also paid significant amount of money in terms of penalties, fees, interest. And if the IRS could prove that they knew it was fraudulent, they'd probably maybe even serve some jail time. What people will often hide behind is the fact that, Oh, look, well, my CPA said that this was okay. That's why I hired them.

21:04Right. But the bottom line is, and the lesson also from this is, that taxpayers are ultimately legally responsible for the accuracy and the legality of their tax returns, regardless of what their CPA or their enrolled agent or EA had told them. So when you sign your tax return firm, you are saying, I think this is true, regardless of what you were told. So it would be very interesting to know what happened with the clients, especially with anything that has the hint of a tax shelter, the IRS will keep an eye on because there's so much abuse of these types of things. I'm still looking for the hero in this story.

21:45I'm picturing some investigative journalist who somehow was maybe, I don't know, a friend of a friend and bumped into Mellinger, I don't know, in an elevator and all of a sudden confronted him. Was was there anything in the source that you were checking revealing the gumshoe who detected this all? No, I think they were probably just the good, hardworking, but anonymous folks at the IRS and the FBI. You know, it seems like they probably never really get their due. I mean, nobody really likes taxes. And then hearing that you work at the IRS, you're sort of like, oh, so you're a tax collector. I read about them in the Bible.

22:21and the list goes on of reasons that we rarely express admiration for the irs and it's even been under fire with yeah well some firings like some other government agencies this year it doesn't seem fully fair i guess the people who join the irs know what they're in for and i think that many are admirable people you and i live here in the greater washington dc area robert we have are some of your best friends tax collectors i was just going to say that living in the dc area i certainly know people at the IRS. And you may remember David, Phil Marty, who was one of the early board strollers at the Motley Fool, worked at the IRS for 25 years, and was one of the most helpful people on our discussion boards answering tax questions.

23:02And after he retired, he volunteered for what is the IRS Volunteer Income Tax Assistance Program, or VITA, which I'm bringing that up because I do it as well every year. And if you are out there financially inclined, looking for a way to give back to society. The program is great. And the VITA program is looking for volunteers. You don't have to have tax experience. They do the education and everything. So that's a little plug for the VITA program. But yes, the bottom line is the people I know who work at the IRS are really good, hardworking people. So I don't know that we're going to close story three by saying hug a tax collector, but how about a pat on the back?

23:40Most of them are honorable people trying to do their best, and they're not even celebrated in stories, busting scams. And let's Let's be clear, these criminals do not turn themselves in. Amazon bietet allen frischgebackenen Eltern in den Logistikzentren extra Familienboni. So wie Anton, der gerade seine neugeborene Tochter im Arm hält. Ihr Glucksen ist für ihn das schönste Geräusch der Welt. Das heißt, vielleicht ist das Geräusch das schönste von allen. Let's move on to story number four. did you ever see the movie Invasion of the Body Snatchers, any of them, in theaters? Not in theaters, but I've seen them on TV.

24:19Okay, yeah. I remember one of my early theatrical experiences, I remember Donald Sutherland was in this one, and so I'm going to say it was somewhere maybe late 70s, something like that. I was young enough to be very impressionable. I still can see, with fear in my eyes, Donald Sutherland surprising me in terms of his behavior after he'd been snatched, spoiler alert, I think near the end of the movie anyway, invasion of the crypto snatchers.