Some People Have Big Bezzles

 Today’s Axios Markets pointed me to a Felix Salmon column where I learned a new word. Here’s the gist:

When markets turn, more investors tend to want to take their money out. That's when victims of fraud find out the money has disappeared. The Bernie Madoff fraud is a prime example — it couldn't survive the downturn of 2008, since the higher Madoff marked his clients' positions, the more likely they were to want to cash out.

Until the point of discovery, the money is gone, but the victim feels no loss. Economist John Kenneth Galbraith, writing in 1955, named this "net increase in psychic wealth" the bezzle, and explained that it invariably increases in bull markets, only to shrink when "money is watched with a narrow, suspicious eye.”

As John Mills wrote in 1867: "Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works."

No, Salmon’s column does not mention NFTs.

“The Wallaby of Wall Street”

Road Town, Tortola

The Road Town, Tortola, office of Mossack Fonseca, the Panama Papers law firm, served as the registered address for Globe Trade Services, a company set up via instructions from Hong Kong. All shares in Globe were owned by its sole "director," a company with a P.O. address in Belize.

The man behind the curtain? The Australian Wolf of Wall Street.

Jeffrey Revell-Reade specialized in "boiler rooms" selling worthless stocks. He worked his "industrial-strength fraud" via Madrid, routing funds conned from hapless British investors (something like $100 million in total) through Globe.

As investing goes global, so do the hazards. Happily, investors may get some of their money back as Revell-Reade is divested of his yacht, Wimbledon mansion and other assets.

Art – the “Investment Asset” That's Easy to Fake

Can you tell a painting by Rothko, worth many millions, from a fake, one of the forged works sold by Kneoedler Gallery?

The second painting is the forgery, and it was good enough to fool the chairman of Sotheby's. Domenico De Sole and his wife paid over $8 million for the fraudulent asset in 2004. They just settled their suit against Knoedler's.

Repeat Offender in the Investment Jungle

In the 1990s Charles Howard's stock manipulations helped sink two banks. He served three years in prison and was barred from serving as an investment adviser.

By 2002 he was back in business as…an investment adviser. Now he's been sentenced to seven to twenty years for a second round of fraudulent activities.

After three years, the Monadnock Ledger-Transcript reports, he may be eligible for home confinement. Let's hope his return to wealth management takes a little longer.

Nigeria Forever!

From today's email. Or so I conjecture.

I hereby would want to bring to you the good news about your long awaiting fund, The Federal Ministry of Finance, Nigeria, and the Banking industry here in Nigeria in-conjecture with Central Bank Of Nigeria held meeting in Abuja regarding all foreign payment.

How a $150-Million Trust Fund Went Missiing

Wall Street had a terrible year in 1973. Franklin Resources, run by Charles B. Johnson, had gone public two years earlier;  now it was struggling with a major acquisition and running at a loss.

Franklin's underwriter obtained a $100 million loan for Johnson from Anthony Miele, Jr. As a thank you for the help, Johnson gave Miele 4,000 shares of Franklin Resources, then worth about $4 a share. Miele put the shares in a trust for his son, Anthony Miele III.

In 1974 the elder Miele died of a heart attack at age 39. The trust's Franklin Resource shares were voted that year, according to bank records. After that the story, as told by William D. Cohan in the NY Times,  gets murky.

For years the younger Miele knew nothing about the trust. Eventually the shares were deemed abandoned, and Franklin Resources rejected Bank of New York's offer to track down the trust beneficiary. In 2012, a business partner of "the Al Capone of New Jersey" reportedly "signed something" on behalf of Miele.

Anthony Miele III is fighting to reclaim his inheritance, now worth about $150 million, including unpaid dividends.

Update: Antoine Gara's Forbes column offers additional details of the murky story. Not only did the 4,000 shares go missing, Miele Jr.'s $100-million loan was not repaid.