Ponzi scheme - Massive scandal about to break!

10:03 PM 10 Dec 2013 NZDT
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Bernard Madoff - the multi-billion dollar fraudster
Bernard Madoff - the multi-billion dollar fraudster

When the term 'Ponzi scheme' is mentioned these days, the names Bernard Madoff and Allen Stanford instantly spring to mind. The pair of them ran multi-billion dollar frauds (US$60bn and $8bn respectively) that destroyed the lives of thousands of investors who had put their life savings into a 'wonderful' investment strategy. How so many people were sucked into the scheme is baffling to those on the outside. The lifestyle, the sales pitch, the success stories of the early investors - I suppose it all adds up. 

So where does this link to racing you ask? A prominent Australian 'racing identity' this week has been reported to have lost access to a bank account with punters' club funds of $194m in it. Firstly - is there a worse term for anyone to be labelled with that 'racing identity'? It ALWAYS ends up meaning shonky crook! Secondly - who the hell has a punters' club with an active bankroll in the tens of millions? It simply can't be done. 

The media has just started to scratch the surface on this case: 

- Racing identity Bill Vlahos denies punting club losses 

- $5m bill for Caviar's brother unpaid 

- Punters' club man faces suit over Black Caviar's half-brother 

but my sources tell me there is a lot left to expose. 

Let's examine the alleged punters' club run by Bill Vlahos: 

There was no prospectus for potential investors, no contracts securing their investments, nothing at all in writing. No public records of the club activity. All members were sworn to secrecy. (Anyone hearing alarm bells?) 

Members would put money into the club and then receive regular dividends. Members were promised a return of over 6% per quarter, adding up to 25% annual profit on investment, and that's what the early investors received. It was a betting syndicate. Since when are betting returns consistent? 

All the dodgy betting investment scams in Australia are based on the Gold Coast, so surely this one had to be legitimate? The syndicate was allegedly betting on Melbourne and Sydney racing each week, but with 'offshore outlets' via a broker. Punters worldwide will tell you that getting on is harder than ever. As soon as you start winning, your cards are marked and the industry works against you to shut you down. Corporate bookies shut or heavily restrict your account. Betfair hits you with a Premium Charge of up to 60% of your profits. There simply aren't offshore outlets who will let you bet millions on Australian racing, and there certainly aren't charitable betting firms out there who will let you win a million dollars per quarter to keep up with your promised 6% quarterly return. There is more truth in a Harry Potter novel! 

The master system behind this money tree: 

"Mr Vlahos developed his system during a two-year stint living near Randwick racecourse when he was not working full-time. 

He said he used his mathematical training gained during his La Trobe University psychology degree to come up with a way to beat the odds. 

Mr Vlahos said that members of his club trusted him despite the lack of written contracts, and accepted that he collected five per cent of the winnings. 

"There's nothing in writing because it's a punting club and it's a trust punting club, the people that are in it have made the decision that they understand how the punting club works between me and them," he said." 

"Mr Vlahos said that the maths-based system he used for the punting club brought constant quarterly profits back into the common pool." 


The "mathematical training gained during a psychology degree" allowed him to develop a system, which he coincidentally did while living next door to one of the biggest racecourses in the country. I'm calling bullshit on that one. Wagering is an incredibly complicated business which requires an enormous workload just to keep up with continually evolving markets. Maths alone will not make you a profit. Form study alone will not make you a profit. The best money management scheme of all time will not make you a profit. Anyone who tells you they can make consistent, unlimited profits on horse racing has as much credibility as a politician.... 

The reference material for a successful and disguised Ponzi scheme is the success of the early members. They make their money from introducing new members, although it is highly likely they are unaware of the mechanics of it. Every new member brought into the syndicate bring new liquidity, which is actually the profit they supposedly make every week from their betting investments. The ground-floor investors do very well out of it, and continue to innocently provide glowing references for anyone else considering joining. For them, everything seems above board. So Bob is considering putting money in, he looks at Jim who has been in for a year and done well, then he looks up to Max who has been in for longer and is genuinely displaying the lifestyle of someone making solid, regular profits from their investments. So Bob thinks he's onto a good thing, everyone knows each other and believes what they see, and injects more money into the 'club'. This cycle continues with everyone profiting until it gets too big. Suddenly the rate of signing up new members starts to fall away, the liquidity dries up and so does the flow of profits. Vlahos claims that they had only lost money in one quarter in eight years - that's all it needs to start crumbling.... 

One piece of anecdotal evidence I have heard is of an early member in regional Victoria who had an incredible run signing up new members - while they all bought cars and swimming pools with their profits, he kept re-investing his profits to create that golden nest egg for retirement. I'm told he believed his share of the syndicate pot was as much as a third - in the vicinity of $60-120m! I'm tipping he'll be rather disappointed. 

The Westpac account allegedly containing the $194m hasn't been locked by the bank, it hasn't gone missing, they haven't lost the account due to a computer glitch. It never existed in the first place. 

Bill Vlahos doesn't exactly have the cleanest of connections in the racing industry - he has a link to Tony Mokbel, the big time drug dealer who laundered much of his cash flow through various forms of gambling. When the heavy hand of the law started closing in on Mokbel and his associates, it was Vlahos who took over ownership of a horse owned by Tony's brother Horty Mokbel, Pillar of Hercules. The chances of that being coincidental are very slim. And it was this love of horses which reports say, saw him come up with another front for the Ponzi scheme. 

Vlahos was most famous for his backing for BC3 Thoroughbreds - a new age bloodstock syndication company who entered the market with a bang, paying huge prices for yearlings, including $5m for a half-brother to Black Caviar. It seemed over the top at the time, their attitude was "we weren't going to be outbid on this one". And now we know why. Value didn't seem to matter to them. So long as the horse could attract investors, they'd be fine. The sales company, Inglis, have yet to be paid for the horse. This isn't uncommon, trainers often take a while to syndicate horses, but they have to pay interest on their debts. It is reported that several people have paid cash for shares in the blue-blood colt, but none of that money has been passed onto Inglis - the allegations are that it has all been tipped into the Ponzi scheme. 

If all this is true, and I have no reason whatsoever to doubt my sources who have seen this building up for several years, there are many highly respectable people caught up in this, completely innocently. Investors from Melbourne society, football clubs, players and administrators. Highly respected administrators who have left their jobs to become part of the BC3 'success story'.... My sources tell me that BC3 staff were told this morning Australian time that the company is no longer. I'd expect most of them knew nothing of all this until very recently. 

The interest started to mount up on 'Jimmy', the half-brother to Black Caviar. Pressure was on to find more funds to put into the club - surely this sham would last forever? Vlahos allegedly relocated to Singapore earlier in the year - to secure more suckers? To get away from the front-line pressure of the scheme? To stay away from investigators and start preparing an escape route?

Theories of what has happened to 'Jimmy' are plentiful. The SMH article said 'the insurance policy can only be paid out in death'. Spider bite, heavy dose of anti-biotics from a vet which is rumoured could be linked to laminitis, a potentially fatal disease.... If the horse survives this ordeal which he is still recovering from, a successful life on the racetrack must be highly improbable now. A stud career for an unraced colt, no matter how esteemed the bloodlines, will be nowhere as lucrative as it could have been with a few wins under his belt. 

This scandal has only just started to hit the courts, brought upon by legal proceedings from an unhappy member who is unlikely to ever see his money again. Vlahos' assets have been seized, his passport taken away. Criminal reporters will dig further into this, further than the traditional racing media who are always reluctant to expose/embarrass people within the industry. I'm told investigative journalists from The Age have been close to breaking this story but were holding back - articles from their rivals may now force their hand. 

The fallout from this will be enormous. Racing can't afford to have thousands of people with significant sums of money involved become disenchanted with the sport. When the Nathan Tinkler empire crumbled, the people who felt it most were the businesses and staff he owed money to. This scandal goes so much wider. And yet it's not a new blight on the racing industry. Go back to the 80s and a Melbourne conman called Joe Talia did something similar, using the gift of the gab to convince people to invest in his schemes. There were no miracle investment schemes, it was just him pissing the money away at the racetrack, in casinos or living far above his means.

 
 
"This article written by and reprinted courtesy of Scott Ferguson, seasoned betting industry expert and editor of www.sportismadeforbetting.com blog. You can also follow him on Twitter via @borisranting"

 

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