By DAVID MOON, Moon Capital Management
July 10, 2005
Once again, Knoxvillians can be embarrassed (or proud,
depending on your outlook) that one of our own has brought down the wrath of
federal financial regulators on our scruffy little city. Just as the ghost of
Cas Walker continues to influence generations of local elected officials, it
seems that Jake and C.H. Butcher are destined to be the equivalent role models
of a fringe financial element in our community.
I guess everyone needs role models, even the ethically
When the Securities and Exchange Commission sued Jon E.
Hankins, alleging that he and his firm, Tenet Asset Management, had provided
falsified records to clients, Mr. Hankins joined a list of infamous local
financial folks to run afoul of the law. Hankins hasn't been convicted of
anything. To my knowledge he's accused only of trying to hide terrible
investment decisions, not of absconding with anyone's money. But I suspect that
doesn't pacify many of his investors. They thought they were making more than 30
percent a year, when in fact they were losing more than 20 percent.
Ten years ago Knoxville was rocked by a suicide that
revealed a multimillion-dollar Ponzi scheme. In 2002 a Knoxville resident was
convicted for his role in an Etowah scheme where he promised to triple
investors' money every six months because he had developed a process to convert
common ores into gold and platinum. Later that year a different group of
Knoxvillians sued a group, alleging a Ponzi scheme disguised as an Internet
retailer about to go public. Less than a year ago a couple in Morristown was
arrested for perpetrating a financial fraud for eight years.
I don't know if our experience is typical of a community
our size or if something in the mountain water just inspires it around here, but
it seems we have more than our share of shenanigans going on.
There are some red flags you ought to look for when
considering an investment that sounds too good to be true. The first red flag is
that something sounds too good to be true, but you already knew that. If someone
claims to be generating returns that are exorbitantly and consistently above
those of managers with similar styles, their picture should be on the cover of
Forbes. Greed and emotion often cause them to ignore their common
Tenet Asset Management was not
registered with the Securities and Exchange Commission as a Registered
Investment Advisor. Not a good sign. Being regulated by the proper authorities
does not preclude malfeasance. Not being regulated, however, should cause
Don't be fooled by appearances. A
fellow walking around in an $1,800 suit may have bought it yesterday on a credit
card. Things are not always what they seem.
There are probably just as many
sinners in church as there are at Shoney's. Be wary of people who sell
investments on the basis of any emotional factor, including your
My wife has great intuition. She can
smell situations that aren't quite right. However, your intuition will not
expose or detect a fraud if the crook does not have a conscience. A snake oil
salesman is most dangerous when he really believes the snake oil
Respect your intuition, but not
exclusively. God gave you a brain for a reason.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).