“Contact me ASAP. I’ve got a great deal that I really think you should to take a look at. The guy behind this is one of Canada’s wealthiest men. He’s very well-respected and if you guys are quick I think you can nail this deal.”
Freddie is a great guy and as honest as they come. He likes everyone, and trusts most of them. He’d come to know this Canadian, who I’ll call Mr. X, via his efforts to raise capital for a project he was working on.
Mr. X had shown an interest in investing in Freddie’s project, but purportedly needed to get another deal done to free up the capital to do so. He had all but committed to investing in Freddie’s deal. Ah, the bait was set!
Visions of cash injections swam in Freddie’s head like lithe bikini-clad vixens in a palm-fringed blue lagoon.
“He needs $1M in a weeks time, but he will pay 10% on the hard money loan plus principal. The deal is fully-collateralized. There is a bank guarantee for the loan.”
The story went like this: A bank guarantee had been issued originally for $1 Million, and funds were being transferred when for some “unknown” reason the bank had bounced the initial transaction and now the receiving bank was not prepared to deal with them again. Enter our “opportunity”.
Mr. X needed the $1M to come in on or before a specific date, the date being the originally concluded (not quite) deal. The original funds were still being held by the bank, who had finally agreed to processing the transfer again, however for some reason this couldn’t be done in a timely manner. It would take 2 weeks.
This is where the “opportunity” arose. We’d loan the money to bridge this 2 week gap and receive exorbitant interest. In addition, by doing so this smooth operator would be able to participate in Freddie’s deal, in which we also had an interest.
As far as I could tell what he was looking for was a bridge loan, yet the underlying transaction was still beyond murky to me.
In any other situation I wouldn’t give this another thought. Too many things never made sense in this transaction, but since it came from a friend, and since Mr. X was well known, we conceded to at least hear him out.
Discussions with Mr. X began, and we peppered him with questions.
We said we needed to see the bank guarantee which secured our funds. I was still trying to figure out why the receiving bank would have an issue with just sending another damn wire, or why the receiving end would not concede to waiting for this to take place.
“No problem but you’re going to have to move fast as the deadline is looming.” Followed by, “My lawyers have promised to send it through, why don’t you wire the funds to the lawyers so you know it’s safe and that way when you receive the bank guarantee you can sign off on it and we won’t miss the transfer date?”
I then asked, “Why does this Bank guarantee state that the guarantee is in favour of the traders who are trading the note? By telling us that there is a bank guarantee you insinuated it would be in our favour, that’s just not the case.”
“Well the note is still guaranteed, the bank wouldn’t provide a guarantee if they didn’t think it safe”
To which I replied, “It’s guaranteed but not to us, they have the funds, they’re safe and can provide guarantees accordingly, we’re not safe at all. While we wait 2 weeks we have no collateral and you’re going to pay us 10%?”
We had ZERO collateral, nada, zip. Here was this guy, a well known business and political figure who incidentally had only a couple years prior been made CEO of a large and very public organisation, actively swindling us. I mean stating that we had collateral was like molesting a nun and saying you were “assisting in furthering religious relations.”
“Look if you need further security, I have some very valuable oil concessions which I’ll pledge against the money. Shares in a company I control which owns oil concessions. They’re worth tens of millions of dollars and we can negotiate the 10%. Look I’m doing you guys a favour here, but I’m happy to make this work for you as I see this as the beginning of a long working relationship. I wouldn’t normally do this but I’ll do it for you guys.”
“15%?…30%?…what works for you?”
Do it for us? He doesn’t even know us! He knows our friend, which is NOT the same thing. What was this guy thinking? We’d just established that his “security” was bullshit and he was at it again without stopping to take a breathe. Who does that? Did he have a pact with the Devil himself?
Where do people like this grow? I’ve yet to confirm it, but I’m convinced there is some institution they come out of which is like a plant nursery for crappy, unscrupulous business people. Maybe Goldman Sachs can help me figure it out..?
Laws don’t help much either. The laws to prevent this kind of fraud exist, the problem is that nobody takes any notice of them, and enforcing them entails paying enormous legal fees.
In any case the correct answer to Mr. X’s question of course was “0%”. It didn’t matter if he offered us the cure for cancer within the 2 weeks. He couldn’t and he wouldn’t deliver, so he wasn’t going to get a million bucks from us.
The Moral of the story
A friend brings you a deal and you trust your friend, but what if your friend trusted another friend? Madoff succeeded for a number of reasons, mainly because he used the “friend” method. He was a known and trusted entity right?
I thought about it. I realised that Mr. X could have stolen the money AND gotten away with it. If that money had disappeared he would have been covered given the fact that the bank guarantee never related to our investment, and the documentation never specifically put any onus on him to deliver.
Lawyers might have made money, but Mr. X would have had $1M of OUR money to fight any legal challenge we brought. Ironic, and sad!
Our parting words were, “Good luck Mr. X, but this one isn’t for us.”
I lied. I didn’t mean him any luck at all, and the deal wasn’t a deal, it was a complete fu%#ing sham. I feel bad about it even now.
I really should have been an asshole, but I wimped out, mainly out of respect for Freddie, whom we genuinely care about.
I should have told him that he was no different than a burglar who breaks into homes to steal.
I should have told him that he belonged in a jail cell.
I should have called him a lying scumbag and told him that I hoped he would get syphilis and his genitals would fall off.
I didn’t, I wished him luck and hung up.
“I know that if someone says, “I have a great opportunity for you”, then he is trying to send fuckness in my direction.” – James Altucher