Gurudeo "Buddy" Persaud, whom the SEC charged with defrauding investors and running a Ponzi scheme, knew enough not to tell people his investment strategy was "based on lunar cycles and the gravitational pull between Earth and the moon," but not quite enough to, you know, not invest money based on lunar cycles and the gravitational pull between Earth and moon. In June 2007, Persaud worked at broker-dealer and investment adviser firm in Florida, but started his own company -- or rather, he put his sons names on the documents of a company he would run to conceal it from his employer (good sign, number 1) -- and began pitching himself to potential investors. According to the SEC:
Persaud solicited investors by, among other things, touting his investment skills and experience as a certified financial planner. He guaranteed annual returns based on his trading decisions.
Okay, that seems reasonable. So reasonable that after pitching "family members, friends, and clients at the brokerage and investment adviser firm" (yeah, he solicited his boss's clients while at work. Classy) he actually pulled in some money with which to start investing. And therein lies our favorite of his (as you can see already myriad) mistakes:
However, Persaud did not tell investors that in making at least 90 percent of his trading decisions, he relied on directional market forecasts based on lunar cycles and gravitational pull provided by an internet service.
The primary principle underlying Persaud's trading strategy was that the gravitational pull between the moon and Earth affects mass human behavior, which in tum affects the stock markets. For example, Persaud believed that when the moon is positioned so there is a greater gravitational pull on humans, they feel down and are therefore more inclined to sell securities in the markets.
Here's a pro-tip for all you future private equity investors: if you're too embarrassed to tell your investors how you plan to use their money, you probably should rethink your strategy.
For some reason (maybe because he relied on the wrong web-based astrology service?) the Orlando-based financier didn't beat the market. In fact, in July 2007, he started out transferring $530,000 of the investors' contributions to brokerage accounts a promptly lost $400,000. As Juliet says, "Oh swear not by the moon, th'inconstant moon, Romeo, lest she take all your money." (It was something like that, anyway.)