Weizhen Tang: Detecting and Avoiding Ponzi Schemes
Toronto, Canada. November 1, 2012 — On October 30, Weizhen Tang, the self-proclaimed “King of 1%,” the “Chinese Warren Buffett,” was found guilty of fraud.
Sources say that Tang is looking to mount an appeal asap –though his efforts are likely hampered by his more Chinese “Bernie Madoff” status as an inmate in jail, pending his fraud sentencing on November 28, 2012.
Weizhen Tang continues to profess his complete innocence.
Whether guilty or not, Weizhen Tang’s case offers some important lessons on detecting and avoiding possible ponzi schemes, such as that Weizhen Tang is accused –and convicted now– of committing.
Detecting and Avoiding Ponzi Schemes:
1 Looking Beyond the Social Status and Excitement of the Investment Organizer and Promoter
Tang was an emerging local Chinese community in Canada and the United States, with mounting global Chinese leadership status. He was famous for organizing major Chinese New Year’s Eve galas and other community, charity events.
During the trial of Weizhen Tang, the public and jury heard how potential investors were lulled into investing in Tang’s hedge fund, with all this public and community activity, excitement and status. Few investors seemed to have done much beyond attending such events, reading his self-promotion book, articles, website; and watched the occasional Live trading session –which could have been as much luck as not. Sadly, his trading success may have been more luck than ability?! Though Tang claimed at trial, of having taken $1 Million of one investor, Ms Lucy Lu, and making a profit of $5 Million, within weeks… Interestingly, Ms Lu claims she did this trading herself, and Tang claimed the credit of her trading ability?!
In any case, potential investors should have considered Weizhen Tang’s consistency and larger-term history of success and sincerity. Investors were told, in fact, by Tang himself, of prior trading losses of investors money. Investors should have increased their due diligence before investing Weizhen Tang; sadly, most did minimal due diligence of the actual investment strategies of the supposed “Chinese Warren Buffett,” and suffered as a result. Due diligence, due diligence, due diligence! Tang provided and attracted investors with various versions of a book, that was entertaining, even inspiring and emotionally touching. But the book was light on details of Weizhen Tang’s actual trading practices, processes and strategies.
2 Looking at the Safety of the Investment
Tang had promised investors a rate of return of 1% per month! With 99% of their funds stowed away safely in government bonds, etc.
While Tang could deflect investor questions about his magical, proprietary trading systems. Investors could have asked about the status and details of the stated 99% of funds invested in “safe” government bonds, etc.
Sadly, investors failed to do so. And were thus, unaware that Tang had no safe reserve of 99% of investor funds –as he claimed and promised.
Yet, Tang raised some $60 Million. In his trial, the prosecutors, the Crown, stated that they found that Weizhen Tang, the Chinese Warren Buffett, the King of 1%, supposedly lost some $15 Million of investor money in trading in the financial markets. While returning some $30 Million to investors as withdrawal calls, and commissions for referrals. And diverting some $2 Million to companies associated to Tang and/or his family members directly in fees, payments.
Tang NOT much of a Chinese Warren Buffett, it seems.
Sadly, if investors had considered these two issues, above, some investors might have detected and avoided the possible/proven fraud of Weizhen Tang, the “Chinese Warren Buffett.”