Feet. They have been washing up on the coast of the Pacific Northwest of North America intermittently since 2007. The foot, due to the weakness of the ankle, is the body part most likely to detach during decomposition. When said foot is inside a running shoe, it’s more likely to be buoyant. Depending on the currents and tides, it will eventually find itself washing ashore somewhere as a grim discovery for a local beachcomber.
Much has been made of this phenomenon, but there’s no foul play involved. The departed, who once wore the boots and running shoes washing ashore on the Pacific Northwest, sadly met their end through accident or by their own hand. Such was the fate of the person who owned the left grey Asics Gel Nimbus runner that washed up on the south coast of NSW recently.
Conwoman Melissa Caddick.
Despite the speculation Caddick may have absconded to a foreign locale, or been in hiding somewhere in Australia, based on the facts we have, it appears the reality wasn’t so mysterious. There was never a grand plan. Her disgusting ruse was nothing more than common theft and expensive thrills on the hard-earned money of those she cheated. Caddick disappeared a day after the corporate regulator raided her house. And that was it. All over.
How did she snare so many people in her web that she was able to swindle tens of millions?
From what’s been floating around in the media it was pretty common stuff. A combination of having the trust of those already known to her, referrals on market outperformance and some scarcity and exclusivity tricks. Caddick had supposedly made her millions and was only returning to the industry to give back. When a potential new client was referred it was said on some occasions, she’d initially turn them down before contacting them weeks later miraculously being able to serve them. This would make someone feel like they were being gifted an opportunity.
Some advisers do have their books closed, but they remain closed for a reason. They know the numbers of clients they can efficiently serve. They won’t change their business model specifically for you.
For the most part, trust seemed to be the bridge that allowed Caddick to bypass the lack of rigour in her investment strategy. Caddick’s pitch to investors looked incredibly underwhelming and insufficient for someone managing money on behalf of others, particularly retirees. From Caddick’s investment strategy:
Our portfolio management strategy is a simple one. We maintain our strategy always, we provide clients with the information we have agreed and we identify stocks in the Australian Market that offer both income and growth to outperform the All Ordinaries Index. I personally have exposure to all stocks that are held in client portfolios. This does not present a conflict of interest. This provides comfort to clients that I personally have the same exposure and risk.
At anytime we hold up to a maximum of 10 stocks listed on the ASX. These are large to medium cap stocks. We require up to 50% autonomy on your portfolio at anytime. We require this so that we do not miss opportunities presented in the market. If you are not comfortable with this level of autonomy please let me know.
Frankly, this is garbage. In saying this, we are sure some of Caddick’s victims will read this post. Tens of thousands of individual visitors come to this website each year. Most of them land on these blog posts via google. Specifically, anything we’ve written on fraud or financial calamity continues to draw readers for years. Scarred investors google their pain.
To those investors, we’re terribly sorry about our blunt description, but if you didn’t know anything, you couldn’t have done anything. Your trust was abused. To everyone else, we hope this goes some way to help you identify and avoid anything that smells.
More than 60 names appear on ASIC’s court documents. Some may be dual accounts run on behalf of couples. Let’s assume Caddick controlled 50 accounts in total. It’s tough enough for a small team to manage a fund successfully. It’s why the performance of active managers is so fleeting. It’s even tougher for one individual to successfully manage their own account.
One person overseeing 50 separately managed accounts that need to be traded according to the ‘opportunities presented in the market’? This would be almost impossible. How does a person adequately get across 50 separate accounts in a short period of time to ensure they all receive the benefit of the same change of strategy and the buying and selling is done adequately? They don’t.
This is what frauds do. Their focus is on the market instead of the client. Outperforming the market is something that can’t be assured or guaranteed, but it’s presented as the service to people who don’t know any better.
Financial advice, while being a holistic service, may fall into four categories. Goals, investing, technical and behavioural.
Goals are right up front. Without defined goals it’s hard to know where you’re going and how much you need. Goals are important and specific, understanding them means clarity for the other areas. Investment knowledge is valuable, but it’s becoming more and more standardised. Technical knowledge is more valuable because it ensures affairs are structured properly with ever changing legislation. Investing and technical are more valuable if you want to delegate them. Behavioural is an area most people don’t understand nor value, yet it may be the most valuable of all.
Behaviour is the one thing that investors can struggle with most. The market falls and panicked investors want to sell, only to see the market rebound. Something hot catches their eye, suddenly they want to put all their money into bitcoin at an all-time high! These are the things advisers deal with, so they understand the value of a handbrake on behaviour. Maybe it’s once a year, maybe it’s once a decade, but poor decisions cost serious money.
Markets don’t deliver greatness year on year. Funds don’t either. The fund that shot the lights out last year may very well be lagging the pack this year. Markets aren’t consistent, this is why we can get frustrated. Combine this financial frustration with other emotional issues in our lives and it’s often the root cause of poor decisions.
Frauds manage these behavioural issues incredibly efficiently. Frauds often dispense with goals to focus on the investing, specifically by getting fabulous returns. There’s no need to worry about poor markets or look for other alternatives. The sun is always shining. Remember, if someone is a fraud, they don’t need to successfully trade your account. They only need to tell you they did it. They can pick the best stocks using hindsight. Investors will never be disappointed. No behaviour issues.
These are the ‘good’ lies fraudsters tell. We say good lies because they’re welcomed. Investors accept them because they don’t know any better, but often it’s the message too many want to hear. More comforting than accepting unpredictability is the norm. Until ASIC comes knocking.
We’ve seen multiple Ponzi schemes and frauds over the past few years in Australia. The odds are high there’s another Melissa Caddick out there right now. Maybe more than one. It’s a frightening thought. Those least protected? Just as in Caddick’s case, it will be self-managed super funds. The area with the least protection and least recourse.
Hopefully Caddick’s investors can recoup something from whatever is left behind.
