PRIVATE AND CONFIDENTIAL DO NOT DISTRIBUTE -------------------------------------------------------------------------------- ¨ DECEMBER 2008 NEWSLETTER // SPECIAL CRIMEFIGHTERS EDITION (CHRISTMAS REPEAT) ¨ --------------------------------------------------------------------------------
Dear Perspective Clients: What started out as an "occasional" e-mail sent to a handful of acquaintances has developed into a regular monthly "Newsletter" read by a substantial number of our clients, business colleagues and friends. Through it all, our intentions have remained steadfast: To provide honest, concise, up-to-date information regarding the various private placement opportunities and project financing initiatives on offer - and to assist in the distribution of specialized knowledge and information about the business to practitioners and interested third parties alike. This Newsletter contains confidential (and/or legally privileged) information not available to the public. You are requested, therefore, to receive and protect this information under strict conditions of confidentiality and non-disclosure. lllll Police work isn't about throwing "bad guys" in jail. Nor is it about trading lead with criminals. It's about getting to the truth. lllll ¨ PLAYING RUSSIAN ROULETTE - WORKING WITH SWIFT MT 760 (March, 2008) Please don't try this at home, but playing Russian Roulette with a loaded pistol is a lot safer than most people think. Say, for instance, you are the proud owner of a "car-stopping" Colt Anaconda .44 Magnum revolver. It's a nice working piece; very reliable, and totally proven. It's got manageable recoil, good action. Nicknamed the "dragon-slayer", it fires six rounds and is chambered for the large-bore .44 Magnum cartridge. Now imagine you decide (foolishly, I might add) to partake of a game of Russian Roulette. You thumb a bullet into a random chamber, close the cylinder, spin it free; pull the trigger, and the firing pin falls. Most people think the odds are six to one in your favor. In fact, the odds are probably nearer to six hundred to one - if not six thousand to one. Here's my point. You put a single, heavy bullet into a well-made gun like the Colt Anaconda, assuming, of course, that the gun has been well-maintained - ladies and gentlemen, it would be a miracle if the cylinder came to rest with the bullet anywhere near the top firing chamber! I mean, the momentum of the spin - helped on by gravity and the cylinder's precision mechanism - would almost certainly guarantee that the cartridge would be carried to the bottom of the cylinder every time! And here's a tip. A snub-nose .44 Magnum bullet leaves a gun barrel at more than 800 miles an hour. Shoot someone in the chest with one of these babies and you'll blow a hole in them the size of Rhode Island. Death will, generally, be instantaneous. Their heart will stop immediately, mostly because it won't be there any more. lllll In our business, too, there is an element of uncertainly and unpredictability regarding the outcome of events. That said, you can shift the odds in your favor considerably by filtering out those transactions which pose an unacceptable risk. Take, for example, working with a SWIFT MT 760. Use of the SWIFT MT 760 in private placement transactions remains controversial. Not too long ago, the MT 760 was considered the "gold standard" for participation in high-yield trading opportunities. Nowadays, however, the unwillingness of banks to issue the MT 760; the high bank charges; the difficulty in getting banks to rescind the SWIFT in the event of non-performance by the Trade Group; the nagging issues surrounding the security of the client's funds - have prompted most clients to reject the use of the SWIFT MT 760 altogether in favor of more "client-friendly" procedures. Let's look closely at the SWIFT MT 760... A SWIFT MT 760 is a guarantee issued by the sender bank upon instructions of its account holder in favour of a designated counter-party - normally, the Trade Group. The SWIFT is, therefore, more than just an inter-bank message - it's a bank-responsible guarantee that funds will be available when they are called upon - a guarantee of payment. A full-blown, cash-backed, non-negotiable bank instrument! Of course, since banks - surprise! surprise! - never put their own money at risk, what happens is that the banks routinely "block" the client's funds as a pre-condition to issuing the SWIFT. The client's funds are then held by the bank as collateral for the issued MT 760. In our business, there is no magic or mystery as to what the Trader intends to do with the MT 760 - he plans to borrow against it. To draw a credit line against the SWIFT in order to undertake the buying and selling of bank financial instruments. Nothing surprising there, but should the Trader - whether due to incompetence or unscrupulous behavior - default on the credit line, the client would responsible for repayment of the loan amount. What would happen is this: The lending bank, in short order, would call upon the "blocked funds" to repay the credit line; the sender bank would then seize the client's money to cover the bank obligation - with disastrous consequences for the client. Make no mistake about it, the client's funds would be lost to him forever. Of course, parties, when utilizing an MT 760, can employ certain safeguards to secure the client's funds against risk of loss. One approach is for the Trader to issue, in exchange for the SWIFT, a so-called "Repatriation Guarantee" (SWIFT MT 769) which guarantees, with full bank responsibility, the unencumbered release of the client's principal at the end of the relevant period. Another approach, surely, is to ensure that the client enjoys co-signatory rights, alongside the Trader, on the account established to receive the credit line proceeds. To often, though, when a SWIFT MT 760 is the required procedures, the only security offered the client is a mere contractual one: A covenant by the Trader to hold the credit line amount, at all times, in a non-depleting account. And that, dear readers, is really not sufficient protection for the client's principal. ¨ ARMOR-PLATED LIMOUSINES - WORKING WITH CORPORATE CLIENTS (June, 2008) Mercedes Benz, the German automobile manufacturer, recently reported record sales of its armored "stretch" limousine, mostly to Russian oligarchs and Arab potentates of one description or other. To the proud of owners of these gas-guzzling behemoths, I have just one thing to say: "Why bother!" I mean no professional shooter is going to come gunning for you with a long rifle while you are tooling around in your armored-up limo. Oh sure, a Vaime MK2 silenced sniper rifle firing jacketed NATO .62 millimeter rounds could punch its way through steel plate at 500 yards. No problem. But then what? You put a bullet in a large moving vehicle with blackened-out windows, the chances of you landing a kill shot are slim to none. Listen carefully. One of these stone-cold killer has you in his sights , he'll be packing an altogether more formidable weapon. Probably an anti-tank missile. Something like the AT-4. Shoulder-launched and laser-guided ("fire and forget"), the AT-4 fires a rocket-type, HP (High Penetration) warhead at a muzzle velocity of 1000 feet per second. On impact, the nose cone crushes, launching the main phosphorous charge that will blow through 15 inches of rolled steel like it were rice paper. Then the BASE principal takes over. Behind Armor Secondary Effect. The entrance hole remains small and tight so the explosive event stays confined within the interior of the vehicle. The incendiary charge will explode with stunning lethality, causing a searing fireball inside the Mercedes, instantly hurling the five-ton limo twenty feet into the air. And the occupants - well, they will be reduced to little floating carbon pieces not much bigger than charred wedding confetti. lllll In our industry, too, mistakes of judgment come at a heavy price. Granted, no one is going to draw down on you with an anti-tank missile, but get the transaction wrong and you risk losing your client - not to mention your credibility. Take working with corporate clients, for example. The cardinal rule in our business is that the client must be the legal owner of cash funds which are freely transferable upon the client's sole instructions. Forget leased funds. Forget blocked funds. Forget funds that have been assigned, pledged or loaned to the client for his own use. Inherited funds aside, the client must have EARNED the funds from his own legitimate business activities - or he utterly and completely wastes your time! And this applies, of course, whether the client is an individual or a corporation. Where the client is a corporation, keep the following points in mind: l Ownership of funds by a corporation can be achieved in one of two ways only. Either the money represent corporate profits (ie. earnings from the company's legitimate business activities) or share capital (ie. stock purchases). Guess what - there ain't no third way! So forget loans or assignments of funds to the company. It's just not do-able. l What if the company has secured an "angel" investor willing to finance the company's project by making funds available to the client? Can the client themselves enter these funds into a Program? Unfortunately, not. The client, after all, is not the legal owner of the funds. The transaction, though, is certainly do-able; the correct way to proceed, though, is for the client to secure an agreement with the investor to fund the client's project out of Program profits, then steer the investor into a private placement program. l You mustn't intermingle third-party funds with funds belonging to the company. A corporation is a separate legal entity; its funds, therefore, must remain segregated in a dedicated account at all times. l The company officer authorized by Board Resolution to execute the Program documents must be the account signor on the company's bank account as well. And he should be the effective "decision-maker" of the company, typically, be the Company President/Chief Executive Officer. l Finally, watch out for "squatters". These are outside third-parties who - whether for reasons of greed, or out of a misplaced sense of self-importance - attempt to hijack the transaction by having themselves added on the account as joint signors and named in the Board Resolution as the authorized signatory. You have my permission to shoot these scoundrels on sight! ¨ CRIMINAL GETAWAY CARS - SIDE AGREEMENTS WITH CLIENTS (May, 2008) Seasoned criminals will tell you the best vehicle to use in a stick-up or "hot prowl" burglary is a Toyota Corolla, couple of years old. Generic, anonymous-looking - the car's easily confused with the Geo Prism and about a dozen other cheap imports. Even traffic cops have trouble recognizing the Corolla! Admittedly, jump on the gas the Corolla's not gonna blow your hair back. But if it's speed you want - no problem. Drop in a 351 cubic inch engine, some Edelbrock carbs and Ersen high-compression cams, she'll smoke tire off the line! And while you're at it, you can trade out the sixteen-inch alloys for some awesome-looking Asanti custom wheels. Chrome finish with gold inserts. 'Course, let's not get carried away. The whole idea with a getaway car is to get lost in the crowd - not stand out in one! Can't get your hands on a Corolla? Not to worry - you can always lease one from your neighborhood rental car agency! My personal favorite is Rent-a-Wreck on La Cienega Blvd. Just around the corner from police headquarters. (I love the irony!) Cost you eighty bucks a day. Plus tax. When you return the rental car, though, remember to rub some dirt on the seats in the front and back. Experienced criminals do this all the time. The rental car attendants will dutifully vacuum it up - along with any telltale stray hairs or fibres left behind. That way, should the police make your vehicle, the forensic boys won't find any trace evidence connecting you to the crime scene. Drives the cops round the bend! lllll To be sure, uppermost in the minds of most intermediaries is not committing crime - but rather how to avoid one. Namely, not getting paid for the transaction they worked so hard to bring forward. Of course, where the Program protects commissions - well, most intermediaries can relax a beat. After all, their payday is pretty much a "done deal", provided, of course, the Program performs. For some intermediaries, though, the lure of protected commissions is not enough; they prefer to share more directly (and more generously) in the client's Program earnings. Which begs the question: Is it okay for intermediaries to enter into a separate fee arrangement with their clients? Here are some things to keep in mind: 1) A side agreement is a matter of private contract between the broker and the client. Its strictly a private arrangement between the two parties - completely independent of the Program itself. For this reason, Traders prefer not to be drawn on the subject. What the client and broker choose to do privately is their own business, and nothing to do with the Trader or the Program under offer. 2) As a broker you owe your client a fiduciary obligation to act in the client's best interests at all times. THE CLIENT'S BEST INTERESTS - NOT YOUR OWN. Full disclosure; complete transparency - these are the guiding principles. Before entering into a side agreement with your client, therefore, it is incumbent on you to inform the client of the availability of any protected fees or commissions offered through the Program and whether such fees are still to be withheld from the client's proceeds; then allow the client to make an informed decision whether or not he wishes to compensate you separately. Failure to do this would almost certainly render your side agreement unenforceable in a court of law, and could leave you liable for damages for breach of your fiduciary obligation. 3) Don't look to the Trader to protect your side agreement; legally, he just can't do it. All proceeds due the client must be paid into the client's account - there are no exceptions to this rule. This requirement is for the protection of the client. Traders cannot divert the client's proceeds to a third-party for any reason. Of course, once the proceeds hit the client's account, the client can then do with his money as he pleases. 4) The regulatory authorities track the proceeds from these private placement transactions closely, and are concerned to stop brokers extorting excessive fees from clients. The authorities can step in and "freeze" the intermediary's account where wrongdoing is suspected. 5) If we are being perfectly honest, side agreements between intermediaries and clients are almost never in the client's best interests. The situation invariably leads to feelings of resentment and hostility on the part of clients who, inevitably, comes to realize that they needn't have agreed to split their earnings with intermediaries, especially where the Program protects broker fees already. Frankly, side agreements are a massive headache for most Program Managers and a GIGANTIC lawsuit waiting to happen! 6) If you have a side agreement with the client, you mustn't accept, as well, any fees offered (and protected) by the Program. That's called "double-dipping", and it is not permitted - under any circumstances. lllll Wishing you a happy, healthy and prosperous New Year lllll
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