Financial firms need to step up to help fight 'pig butchering'; The latest round of Chinese stock scams; I'm wary of 401(k)s opening up to private markets; Index-fund investing as an 'extreme sport'; Changing preferences for real diamonds versus lab-grown ones
I've read a number of articles recently that, once again, underscore how easy it is to lose a lot of money quickly...
Unfortunately, this kind of thing can undo years, decades, even a lifetime of prudent saving and investing.
These articles serve as a good reminder that there's no shortage of bad actors and shady practices out there looking to separate you from your hard-earned money – so you must stay vigilant!
1) First up, this in-depth Wall Street Journal article broke my heart: Millions Stolen, Death Threats: Should Banks Do More to Fight 'Pig Butchering'?
This type of scam is everywhere – and folks keep falling for it. As such, the pressure is ramping up on financial firms and other companies to do their part to help stop these scams.
Here's an excerpt from the article:
For nearly 50 years, Anamarie Hurt trusted her husband, Craig, to manage their finances. And he did a good job of it, making investments that grew into a comfortable nest egg.
Then Craig walked into a bank in Tulsa, Okla., and began moving their retirement funds into cryptocurrency investments that turned out to be fake. A year later, after losing more than $5 million, the Hurts' life savings were gone.
At first, Anamarie's anger was directed at Craig. But it soon found another target: the bank that she said helped him send wires as high as $300,000 at a time to scammers.
And as it continues:
Now that investment scams, sometimes called pig butchering, are booming global operations, some Americans are demanding their banks and financial advisers do more to prevent the scams from happening. Pressure is also spreading to telecoms and social-media platforms such as Facebook, where scammers find their marks.
In 2023, Anamarie sued Arvest Bank, the Arkansas-based regional lender that processed Craig's wire payments. Similar lawsuits have sprung up around the country, seeking damages from the likes of JPMorgan Chase and Wells Fargo and alleging they didn't do enough to investigate their customer's suspicious behavior or to block payments to scammers.
Successful lawsuits – not government regulation – will be more useful to help force banks and brokerages to better protect their customers.
In the meantime, I've said time and time again that you must also be vigilant to avoid falling for these kinds of scams.
2) Next, kudos to Edwin Dorsey of The Bear Cave and my friend and former colleague, Herb Greenberg, for exposing the latest round of Chinese stock scams...
Here's Dorsey's recent Bear Cave post on Substack: Problems in Chinatown. Excerpt:
Today, The Bear Cave delves into the criminal underworld that powers U.S.-listed Chinese stock scams. For years, stock manipulators in China have promoted tightly held non-substantive Chinese companies to U.S. investors, causing billions in investor losses...
Many victims first encounter stock scammers through ads on Instagram or Facebook, which direct victims to join scam WhatsApp groups or push them towards websites for fraudulent asset management firms...
After sharing contact information on these websites or through Instagram ads, investors undergo a basic screening process with questions about their age, the brokers they use, investable assets, current positions, and trading experience. From there, most investors will be put in "feeder" WhatsApp groups.
And as the post continues, things heat up in these groups:
These groups share general stock tips and teachings, often from a fictitious "professor" and their AI model. Investors are first directed to trade legitimate companies based on the recommendations of the AI model and are required to send documentation of those trades to the group or a dedicated assistant.
The Bear Cave believes that the purpose of having users trade legitimate stocks first is to build trust with future victims and to qualify individuals for inclusion in "VIP" or "core" groups, which will be used to execute the desired stock manipulation.
Meanwhile, here's a recent blog post from Herb: Anatomy of a WhatsApp Stock Scam.
In his blog, Herb has previously warned about scams involving Chinese stocks. And as he notes, since he first started discussing them, he has been "inundated with emails from victims."
In his recent post, Herb shared two stories he received – but with the names of actual investment firms that the scammers impersonated deleted. Here's an excerpt from one of them:
I'm reaching out to you [Herb Greenberg] as an investigative journalist known for your in-depth work uncovering corporate misconduct. I recently became a victim of what appears to be a coordinated pump-and-dump scheme involving a NASDAQ-listed company, Ostin Technology Group Co. Ltd. (Ticker: OST) – and I believe this case involves possible insider trading and corporate complicity.
This was not a one-off scam – it was a 3-month-long grooming process that began with a Facebook ad promoting a seemingly legitimate investment group. I was gradually drawn into private WhatsApp chats, where scammers impersonating licensed advisors offered stock tips and pretended to represent credible institutions.
At first, they recommended solid large-cap stocks that performed well, which helped build trust. Once I felt safe, they began heavily promoting OST, claiming it would "soar in 20–30 days."
Relying on their guidance, I invested – only to lose over $40,000 USD when the stock collapsed.
I said it last month, and I'll say it again:
There's too much fraud among Chinese companies listed on U.S. stock exchanges, so investors should beware...
To protect your wealth, it's crucial to identify and steer clear of fraud. Bottom line, avoid these types of stocks at all costs!
3) While it isn't a scam, I don't think opening up 401(k)s to private markets is a good idea.
Here's a recent WSJ article with more on the story: Trump Executive Order to Help Open Up 401(k)s to Private Markets. Excerpt:
President Trump is expected to sign an executive order in the coming days designed to help make private-market investments more available to U.S. retirement plans, according to people familiar with the matter...
An order could help pave the way for big managers of private assets such as Apollo Global Management and Blackstone to access the vast sums of retirement savings held by workers who don't have a traditional pension. Institutional investors such as pension funds have largely maxed out on private markets, leading firms to look to individual investors for new sources of growth.
In theory, retirement plan sponsors can already put some of their investments in private funds and some already do in small quantities. But many companies remain concerned they would be sued by their employees over the higher fees associated with private-market investment products.
This post I saw on social platform X captures my view:
4) It never ceases to amaze (and disgust) me the many creative ways Wall Street develops to suck investors into risky (and usually high-fee) investments.
In this recent column, the WSJ's Jason Zweig discusses a trend that's picking up steam: How Index-Fund Investing Turned Into an Extreme Sport. Excerpt:
Deversification is sweeping through the world of exchange-traded funds. Investing in an ETF that tracks only a few stocks – or even just one – is a lot more exciting than holding an index fund that owns every stock in the market.
But as Zweig notes, this also comes with huge risk:
We now have ETFs that capture the returns of heating, ventilation and air-conditioning stocks; own convertible bonds issued by companies that hold bitcoin in their corporate treasury; use borrowed money to buy already leveraged loans; follow an index of small-to-midsize uranium stocks; track the future cost of transporting crude oil by sea; and replicate the performance of Icelandic stocks. Although some are actively managed, many charge fees 20 to 30 times higher than a traditional index fund.
The ultimate in deversification is leveraged single-stock ETFs. They typically seek to double or triple the daily performance of only one stock.
5) And finally, don't fall for diamond giant De Beers' slick marketing to try to persuade you to pay five times as much money for a real diamond, when it takes a sophisticated machine to tell the difference from a lab-grown diamond ("LGD").
This WSJ article from earlier this month has the details: Are Diamonds Even a Luxury Anymore? De Beers Reckons With Price Plunge. And as it notes, fashion trends are shifting:
Sales of lab-grown diamonds at Walmart, the country's second-largest fine jewelry seller behind Signet – according to National Jeweler magazine – soared 175% in 2024 compared with the prior year.
"Our customers are looking for that type of value," said Chris Steinmann, Walmart's vice president of merchandising, jewelry and accessories.
The Danish retailer Pandora made a decision in 2021 to sell only lab-grown diamonds, partly due to their lower price, but also because it feels they are less harmful to the environment.
Pandora CEO Alexander Lacik said they represent a breakthrough technology that can't be stopped through negative advertising.
"This happened with the car and horses and carriages," he said. "The world is changing."
Regular readers might recall what I wrote back in January when discussing jewelry retailer Signet Jewelers (SIG)...
In short, LGDs are a disruptive technology. And I can see the appeal for many folks... Instead of paying hand over fist for a real (and possibly "unethically sourced") diamond, you could now say to your partner, "Honey, I did the environmentally and ethically right thing – and now we can afford a nicer vacation/honeymoon!"
I think that's a winning argument for plenty of folks... and, as such, LGDs will continue to take significant market share.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.