...for more "investment management companies".
Galbraith called the phenomenon the "Bezzle":
(From "The Great Crash")
"In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. there is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in - or more precisely not in - the country's business and banks. This inventory - it should be called the bezzle. It also varies in size with the business cycle."
It will be interesting to see how the marks were finally convinced to invest. The behavior is inconceivable to me, and reminds me of my favorite quote from the movie "Wall Street":
Lou Manheim: "Bud, the thing about money is it makes you do things you don't want to do". Shortly thereafter in the movie Lou also goes into a Kierkegaardian (or "Johannes Silentian", if you prefer) discussion of "man vs. abyss", which is also quite memorable.
By Patricia Hurtado
Feb. 25 (Bloomberg) -- The FBI in New York today arrested four people in three separate securities fraud cases, including one case that allegedly defrauded investors out of hundreds of millions of dollars, said Jim Margolin, a spokesman for the FBI’s New York office.
Paul Greenwood and Stephen Walsh of W.G. Trading, a broker-dealer based in Greenwich, Conn., were arrested on a complaint that accuses them of conspiracy to commit securities fraud in what authorities believe is a $550 million fraud scheme that dates back to 1996.
The two are accused of soliciting funds from institutional investors, including university foundations and charities, according to a federal complaint filed in U.S. District Court in Manhattan.
One unnamed public, state-sponsored university invested more than $65 million, court papers say, including a Feb. 6 investment of about $21 million.
James Nicholson, founder of Westgate Capital Management, was taken into custody this morning by FBI agents. He was named in a criminal complaint on a charge of securities fraud in a scheme that dates back to 2004, court papers said.
Nicholson is accused of operating at least seven separate funds out of offices in Pearl River, New York, and Manhattan beginning in 1999, the federal complaint said. He falsely claimed to investors that the assets he managed in the funds were between $600 million to $900 million.
Prompted by Madoff
The scheme was uncovered in December after news of Bernard Madoff’s alleged $50 billion Ponzi scheme caused Nicholson’s investors to begin seeking redemptions, FBI Special Agent William McGrogan said in the complaint. Investors may have put at least $100 million in Nicholson’s funds, McGrogan said.
Mark Bloom, who Margolin said once worked for Greenwood and Walsh and now heads his own firm, was arrested in connection with a separate fraud scheme.
All four are expected to be presented in federal court in Manhattan later today.
To contact the reporter on this story: Patricia Hurtado in New York State Supreme Court in Manhattan at email@example.com.