Mastering Money by Norm Champ

Author:Norm Champ
Language: eng
Format: epub, pdf
Publisher: McGraw-Hill Education
Published: 2020-11-17T16:00:00+00:00

The Nest Egg Principle

In one of the great comedies of the 1980s, Albert Brooks’s Lost in America, a married couple we called “yuppies” at the time decide to “drop out” and tour America. When the Julie Hagerty character, Linda, loses their life savings at a casino, Brooks’s “nest egg” rant (“The egg is a protector, like a god, and we sit under the nest egg . . . and we are protected by it. Without it? No protection!”) is a classic. You may want to watch the film for that episode alone.

Unfortunately, scammers and low-life investing con artists who feed off investor interest in what the Securities and Exchange Commission (SEC) calls “opaque private markets” are running amok and pose a particular danger to the nest eggs of retirees, the elderly, and the poor. In July 2018, the Wall Street Journal reported on a disgusting fraud scheme that combined both affinity and pension stream fraud. (Utah legal firm Ray, Quinney, and Nebeker represent many victims of affinity fraud common in the heavily Mormon communities of the state, and the firm’s blog reports on many interesting cases.)

A convicted felon operating out of a strip mall in Nevada was selling a private pension product to retirees through an affinity-group advisory firm called Live Abundant that also sold products from dubious operations. According to Jeanne Eaglesham’s fascinating account in the Wall Street Journal,

Scott Kohn, a 64-year-old felon, ran a company from a Nevada strip-mall mailbox that investors claim took them for more than $100 million in losses.

Mr. Kohn’s company, Future Income Payments, appears shut, according to court filings. His investors are likely to be wiped out, according to lawyers representing them, who plan to sue scores of firms that sold Future Income products as soon as this week. At least 25 states have taken enforcement actions or are investigating the company.

The blow-up shines a light on the boom in opaque private markets, to which investors have flocked in the hope of doing better than they can in traditional stock and bond markets. Future Income essentially sold investors other people’s pensions. Mr. Kohn’s firm would find workers entitled to pension payments and temporarily buy the rights to those payments—effectively lending the beneficiaries money against their future pension income in what is called a “pension advance.” Then, Future Income would sell the rights to investors for a lump sum.14

Many honest and hardworking citizens of Utah have lost much of their retirement savings in this all-too-common crime.

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