Transcript
Intro
Stephan Shipe: Welcome back to the Scholar Wealth Podcast. Today we’re covering two listener questions that get into managing wealth across generations. First, we’ll talk about how couples who have set up spousal lifetime access trusts, or SLATs, can think about flexibility and distributions.
Then we’ll shift to philanthropy and how families can balance longstanding commitments with next-generational opportunities. And in our rotating special segment today, I’ll be joined by attorney Daniel Gielchinsky, who has a fascinating background in commercial litigation. Daniel has handled some of the biggest Ponzi scheme cases in South Florida, and he’ll share what red flags investors should be looking out for in today’s alternative investment landscape.
So let’s go ahead and get started with question one.
Question 1 – Adjusting SLATs
exemption amounts were high. At the time, our thinking was to lock in legacy planning for the kids and keep distributions fairly minimal, but with higher living costs and inflation, we’re starting to feel more pressure on our lifestyle budget. Should we think about adjusting trust distributions, maybe adding a cost of living adjustment or more flexible payout provisions?
Stephan Shipe: It’s not uncommon to need some sort of adjustment to a SLAT, especially in these types of situations, but there are a lot of factors we need to take into account here before you make these adjustments or discuss with an attorney to make adjustments like this.
The first, and maybe some background information for those listening who are not familiar with the SLAT, these spousal lifetime access trusts. The idea here is that we want to move things into an irrevocable trust so it gets out of the estate, so that way those assets can continue to grow. And if they can continue to grow outside of the estate, even better, right? Because then that’s not going to count against any estate limits, which sounds like how you had yours set up and the specific issues with the SLAT that you set up.
Two typically, right? You have one spouse that sets up, so I’m the donor spouse. I set up a trust and I put money across into the SLAT, and my spouse can now access some income from that trust. But the principal amount continues to grow. And then your spouse sets up a trust in the same exact way where that income goes to you as the donor.
So you have this weird situation where by setting up an irrevocable trust, by definition of it being irrevocable, you can’t touch the stuff, right? It can’t be for your benefit. The idea of it being irrevocable is you’ve cut ties with it, it’s gone, and it’s only there for someone else. It just so happens that that someone else is your spouse.
So then that’s where it gets to be a little gray in that area of sure, my wife can access the income from a trust that I set up and then I can access the income from a trust that she set up. So now we’re both benefiting from an income perspective, but technically, we’re not directly benefiting from our direct trust. And so that’s the background of how that SLAT is set up.
And the idea there is that the amount would continue to grow. It only has some distributions from it, and then kids are able to have access to the trust at the end, just like a traditional trust would be. The problem that shows up with these SLATs, exactly what you’re talking about, and this is why you want to be careful with setting these types of things up and be very thoughtful about how much money you want to fund into a SLAT, is that you can’t access that money anymore.
You’re locking down that money and the only thing that can be accessed is your spouse is able to access the income from that trust. This is where it gets a little sketchy whenever you have situations where you need more than what’s being delivered from the trust from a distribution perspective.
Now in most cases you have what’s known as a HEMS standard. So the distributions can be used for things like health, education, maintenance, or support. That already has a little bit of flexibility. You could go and talk to your attorney, the drafting attorney of it, and go talk about some modifications to the trust that would allow things like a cost of living adjustment that would have an increase over time, so that way as your expenses increase, so too do the trust distributions. That’s one option.
However, the tradeoffs you’re going to run into when you run into this is that when you increase those distributions and you increase the flexibility of how much you can distribute, you start running the risks of asset protection. One of the big advantages of an irrevocable trust is that it is no longer yours. So if it’s no longer your trust and you’ve put it over here, then from a credit protection or asset protection perspective, somebody says, “Hey, Stephan, we’re going to sue you for something,” or something like this comes up, I can’t say, well, my irrevocable trust is something you could tap. That’s cut off. I don’t have access to it.
As soon as you start coming in and having more discretion over what types of distributions can be taken out of that trust, that starts to open you up for more or less asset protection, where creditors can come in or others can come in and say, no, there’s really not a separation, because he has access to this trust and can move the distributions up or down.
So that’s really that weakening of asset protection there. The IRS can look at that as well and say, hey, this is not what the intended purpose was. You’re not supposed to have control over this irrevocable trust, so you just happen to be increasing distributions whenever you want them and decreasing distributions whenever you don’t want them. That’s that fine line you have to be careful with when you’re talking to your attorney.
And those are the questions I’d be asking of how much flexibility can you give as part of this SLAT while still retaining the asset protection and tax efficiency that was the purpose of the SLAT to begin with? So that’s going to be the main goal in this scenario, you trying to increase this. Maybe it’s a cost of living adjustment. Maybe there’s some language that can be added to the trust that adds a little bit more flexibility. But just know that whenever you add flexibility, you’re likely decreasing the effectiveness of the trust to begin with, with both the asset protection, the tax efficiency, and the bigger one, which is the point you brought up of you’re wanting to set this money aside so that way it could continue growing for the next generation.
If you’re pulling more from that account, that’s less that they’ll have in the future. Now, I’m not saying that you all should stop paying your bills just so your kids can have a larger payday at the end. I’m saying that we need to take into account all these things. It’s not just I want to increase the distributions. And the short answer to the question is there are options, but this is definitely a conversation you should be having with your attorney.
And then also looking at your financial plan to see how much do you need to be pulling from these accounts so that way you’re not trying to do this in three years or five years. And because I don’t want that to be the case either. If you go back and say, all right, cost of living has increased. We have a process in place now, and then three years from now you have the same question and you say, we’re back at the same scenario. Our expenses have increased and now we need more from the trust. That’s not where you want to be.
I would start thinking ahead and saying, where are you at now? How much are you going to need now? How far back are you and how much are you going to need 5, 10, 15 years down in the future? So that way, whatever drafting is done now or redrafting is done now, it adequately reflects what the current situation is and also the expectations of the future.
Question 2 – Next Generation Priorities in Family Philanthropy
Listener: We’ve supported the same hospital foundation for more than 20 years, and it’s been an important part of our family’s giving. But now our kids are encouraging us to put more focus on education access. We don’t want to walk away from the relationships we’ve built with the hospital, but we also want to give the next generation a say in where the family’s philanthropy goes. How can we adjust our strategy so it reflects their priorities without damaging the long-term commitments we’ve made?
Stephan Shipe: I think it’s great that you’re trying to still include the next generation into this decision, because it’s a big decision. These are great opportunities to instill those financial family values of what’s important and how to be good stewards of wealth in your situation. So definitely including them is number one. The question then is how to include them without ruining the relationships you’ve created with these great organizations, specifically the hospital that you’re dealing with.
I think the first is to take a step back and say, what are these major values that you’re wanting to instill? What are the main goals of your giving? And the reason I say this is because you say you’ve been giving for 20 years to the same hospital and there’s nothing wrong with that, but you were likely a very different person than you are today, 20 years ago, and had different goals in mind for your money and probably a different level of wealth 20 years ago than you’re at now. And sometimes that needs a fresh pair of eyes to look at this and say, is this really what we’re wanting to do and are we still supporting the same causes that we’ve always had? Maybe the answer there is yes.
The next step is really bringing in the next generation and trying to find a way to get them involved in this process, to give them a little bit of a voice in it. Because there is a certain point that that money starts to become less of your money and starts to become more family money. And sometimes it’s hard to hear that they get a say. Because I’ve talked to some people and they say, you know, Stephan, they don’t get a say until I die. And I’m going to make every decision until that point. And that’s completely fine. It’s your money. You can do whatever you’d want with it. The counter to that is do you want some of that legacy to continue or do you want it to be a hard cut and they can shut down any legacy and gifting that you’ve done over your life and they can start whatever? Is there a hard stop or is there this transition period that you run from your goals to their goals over time? I hope the answer is yes and there should be some transition, because that gives you a really rare opportunity to build those relationships with different types of beneficiaries, different types of organizations, and also pass on that relationship to foster that relationship.
They can start coming to those foundation meetings with you. They can start showing up to new initiatives that the hospital has going on. And I don’t think that’s mutually exclusive, that you have to stop the hospital giving and not be able to do any educational access. I know there are lots of programs that hospitals will do. It may be worth going into the hospital and depending on your level of gifting, they may be very open to whatever you say and whatever recommendations you have to go in and say, do you have any type of education-focused priorities that the foundation has within the hospital, that maybe you and your kids can have those blended type of scenarios where you can still be giving to the hospital and they can be spearheading different opportunities within the hospital relating to health education or medical education for different medical professionals.
There are a lot of unique opportunities there, and that’s one of the greatest things about having a situation, having these types of conversations, is sitting down as a family and looking at what are our goals for this family wealth when it comes to charitable giving. Is it education access? Is it just this hospital? Or is there a broader initiative that we have, or is there an opportunity to blend these two together?
And a lot of that is really starting to sound like a family foundation. So when you start thinking about ways to incorporate the kids into these decisions, it’s not only having them show up to meetings, but it may be worth starting to have the conversation of should this be a little bit more formal? Should we start a foundation? Should we start having true board meetings for a foundation where we can all talk about different ideas and different grant making decisions when it comes to different organizations they found, different organizations you’ve found, how they compare, what different activities they have, how much money are they going to need? Is this a one-time donation or is this a situation where you’re going to be donating for the next 10 years for a bigger project? Those are great things to involve them on and get them used to seeing that.
Now, that’s not to say there isn’t going to be a little bit of a dance here with the relationship management process of trying to communicate to the hospital what that looks like and that you may be cutting back on some of your gifts. But I definitely don’t think it means that there has to be a hard stop and you have to go to the hospital and say, we’re never giving to you again. It just may be you go in and say, we’re bringing in the next generation and we’d love for you as the hospital to present to us some cool initiatives that you have. What are things that you’re looking for? And present them to our family. And maybe some of those would resonate with our family as a whole.
Make them work for it a little bit and pitch you on where they’re going to see different opportunities. Because in these organizations, these foundations, there’s always something. There are all these different ideas. Because just as you and your kids have different ideas, these foundations in the hospital, they also have really unique ideas of saying, we’ve always wanted to do X, but we’ve never had the right donor to be able to fund it and found that as a priority. You may find that your kids’ priorities match a particular project the hospital’s been wanting to do for a really long time, and now’s their opportunity.
So I think overall it’s fantastic. The more communication the better. And if you can structure something, even if it’s a quasi-foundation where it’s nothing formal, but it’s you sitting down with your kids and having conversations around, here’s how much we plan to give over the next year, here’s how we’re thinking about splitting it up, and how would you split this money up? And what different organizations or initiatives would you be involved with?
Rotating Special Segment – From the Field
Stephan Shipe: And for today’s rotating segment From the Field, we’re shifting to something that’s important to every one of our listeners and really exciting to be able to talk about, which is protecting wealth from bad actors.
So fraud and Ponzi schemes in particular often target high net worth investors. To learn some of the context and help us spot the warning signs, I sat down with attorney Daniel Gielchinsky, who has deep experience in commercial litigation and has worked on some of the largest Ponzi scheme cases in Florida.
Daniel, welcome to the show.
Daniel Gielchinsky Interview
Stephan Shipe: Daniel, thanks for coming on today to talk to us. You have a really interesting background starting on the Wall Street side, jumping into the litigation side and the legal side of things, the Ponzi scheme world and everything.
Why don’t you give us your background. Tell us a little bit about how you made that shift, what your experience has been, and we can jump into some topics.
Daniel Gielchinsky: Sure. Yeah, I have a Wall Street background. I worked on Wall Street during college and part of law school, and I always thought, you know, this is great. I love this life. I worked around bond traders and they made, you know, lots of money. They worked real hard, but they made lots of money. I was on a trading desk for a while and I figured, you know, I’ll go into corporate law at some point.
And when I graduated in 2001, the market had crashed and there were no corporate law jobs out there. Nobody was hiring corporate lawyers. So, I had a side business going on that led into a dispute with somebody who owned a house that I had rented for a summer share house in the Hamptons. And we resolved it. He was a lawyer. He thought I was a lawyer from the way that I was handling things, but turns out, I was just a law student.
He offered me a job doing civil litigation, land use, a little bit of bankruptcy, a little bit of everything. Started working for that firm. Worked there for three years. Found out that I really enjoyed commercial litigation much more than I would have enjoyed doing corporate law and sitting behind a desk all day. Going to court, trial advocacy, and making the courtroom your stage really became my passion.
So after that firm, I worked for another firm that became a regional northeast firm for seven years. I was married at the time and my then wife was a corporate lawyer with a really big international law firm. And due to the trajectory of her career, she suggested that we should look for jobs in South Florida.
So I put my hat into the ring with a recruiter, and at the time there was a Ponzi scheme going on called Rothstein, RRA. Scott Rothstein was a lawyer who ran a billion-dollar Ponzi scheme. It was the biggest Ponzi scheme to ever hit Florida.
I watched a documentary about it on television, and I was like, this is super fascinating. I did a lot of research and learned about it. Sure enough, within a few weeks I had a job interview with one of the most widely recognized South Florida law firms, and they said, do you know anything about the Rothstein case?
And I said, boy, do I know about the Rothstein case, and proceeded to tell them everything that I had watched in the documentary and researched on the internet, and I guess they were impressed because they made me a job offer when we moved down to Florida.
Started working with them, and from there, things in the bankruptcy world took off for me. After a few years of that, I decided to go out on my own. I had my own firm for about seven years until I opened this firm with a partner, DGIM Law in Aventura. And this firm, over the last three years, has really grown and had a lot of success in the commercial litigation and corporate bankruptcy arenas.
So that’s the short version of where I am today.
Stephan Shipe: Oh, that’s fantastic. That’s awesome. And so when you’re looking at all this and talking to clients and everything, everyone’s watched the documentaries, right? You see the documentary after the fact and the negative stuff.
But what are some of those red flags that you tend to see that now with all the experience you have and looking at this, you can almost spot a mile away? Like, that’s not going to end well, right? That you’ve seen, or maybe situations where those signs were there, but somebody missed them.
Daniel Gielchinsky: So it’s usually the same thing over and over and over. It starts with promises of unlimited wealth. You’re going to make lots of money. As soon as I hear that, okay, red flag.
When you see the promoters or the owners of the scheme or the investment opportunity being super flashy, driving a Bugatti or McLaren, having the gold watch and jewelry and tailored suits and super fancy offices, upselling, basically flashy TikTok videos — that’s a red flag. They’re trying to lure you in, thinking, you know, I’m going to be like that. I want to live the dream.
What else? Unrealistic rates of return. Warren Buffett, world’s greatest investor, tells you expect to receive 6 to 7% rate of return on investment. If I hear anything above that, I’m already questioning what’s going on. How is that possible?
If there’s mystery surrounding how the entity actually makes money — if they’re cloaking the investment in big, fancy terms and words that even I can’t understand. We had one not too long ago that involved promises of being involved in these sort of merchant cash advance deals. And I know how merchant cash advance loans work, but you don’t syndicate merchant cash advance deals to the general public. They’re usually lenders who have a very tight, close-knit community and if you know anything about that world, they don’t let anyone into their community. They were hiding these concepts behind big, fancy terms.
And as soon as you start hearing big, fancy terms that I don’t understand, that’s a telltale sign that something is wrong.
Answers to everything. As soon as you start asking questions, they’ve got all these great answers and all these very polished answers that just leave open more questions in my mind — and should leave open more questions in other people’s minds. That’s a telltale sign.
Here’s a huge one. Push to get new money in, push to get in new investors. Usually that’ll take the form of referral fees: bring in another friend, bring in a customer, and you’ll get a percentage. That kind of thing. Ponzi schemes are predicated on fresh money. You need a constant flow of fresh money to pay off the old investors, to keep people happy. Rob Peter to pay Paul. So as soon as I hear that there’s a referral-type program, that’s a red flag.
Barriers to getting your money back. If you’re being told to wire money to some unsecured platform or multiple bank accounts in multiple places, or a network or platform that’s proprietary to that company that you’ve never heard of and it’s not generally known to the public, that’s a red flag. Because as soon as they pull that network or that middleman out of the picture, you’re not getting your money back.
Lack of regulation. If the industry is not really regulated by any regulatory authority, that’s a wide-open area — huge opportunities for Ponzi schemes to thrive, and crypto is certainly one of those.
I look to the leadership of the company. Usually if I see criminal indictments, people who have been in jail — and that certainly happened recently with a case we were involved in — the promoter had gone to jail. Leopards don’t change their stripes all that often. So when you see that type of reputational challenge, that should be problematic.
Flashy sales presentations, slick brochures, things that just look really too good to be true — those are another of the telltale signs that I look out for and often see when these things unravel.
Stephan Shipe: You mentioned the TikTok videos and everything, and your experience has run pre and post social media. How has that changed that world? Have you seen an increase in that because it’s easier to show the flashiness and everything around this, or “I want to be like them”?
Daniel Gielchinsky: Absolutely. And during COVID especially, we saw a rise in the use of TikTok and social media generally to promote Ponzi schemes. Because people weren’t out there, able to go door to door and use the traditional methods of communication. So they started making really slick — especially on TikTok, but also in other social media platforms — really slick promotions and sales presentations, and “contact us for more.” That really went on a rise during COVID and continued thereafter.
And one that comes to mind, it was called MTI. It was a South African-based Ponzi scheme involving crypto, and their TikTok presentations were so slick and just made everything look so digital, cryptocurrency, and “this is the thing” and “this is the latest rage” and “get in on it now before it’s too late.” And people fell for it. Lots and lots of people throughout the world fell for it because social media is available kind of everywhere.
Stephan Shipe: That’s really interesting that now we’re seeing not only the social media side, but then the global aspect of these Ponzi schemes. It’s not just your neighbor starts the Ponzi scheme anymore. It could be somebody in a completely different country that’s started this.
When somebody gets in on this, when does everything start to unravel? What is the sign that things aren’t going well?
Daniel Gielchinsky: In an economy like this where there’s been a decline and people are starting to look toward their assets and needing to liquidate assets to make their ends meet, and they start asking for money back, that’s when you see sort of the tide come in and who’s wearing clothes.
In an economy like this is when we start to see more of these things pop up. Because they’ve been going on for years and all of a sudden people need their money and need access to liquidity. And they start asking for money back, and these Ponzi schemes don’t have new money coming in and they can’t send money out to their investors. People start asking questions and that’s typically when things crash.
But eventually you just run out of suckers. People aren’t putting money in, and people are starting to ask for money out, or a whistleblower gets involved and things will just start to crumble. So as soon as people start asking for money, as soon as there’s kind of a run on the bank and people start asking for money and there’s no more suckers feeding the beast, that’s when things start to crumble.
Stephan Shipe: These people come to see you, right? And they say, “Daniel, I think there’s something going on.” What is the normal reaction there from them or family? Because I know I seem to get a mix of those stories — a little bit of embarrassment, or they don’t want to bring it up. What do you see in that world when it comes to the emotional side of this as well?
Daniel Gielchinsky: Yeah, and most people don’t get to me early enough. The truth is most people just wait until they get that letter saying, “This was a Ponzi scheme, it’s now in receivership,” or some other court-appointed fiduciary is involved, and now you need to give your money back. And most people wait until they get that letter before they come to me.
Some people come to me when things start unraveling — when there’s been a criminal indictment or there’s news, or the rumor mill starts going around that the thing is crumbling. And it’s just shock. It’s disbelief. It’s “how can I fall for this?” “How could someone else have taken advantage of me?”
One particular situation that comes to mind was where I represented the lady who was sort of the third or fourth highest person in the group. She was doing all the marketing for the scheme, and she was really close to the promoters and owners and was a very talented person who was actively marketing the scheme and making a lot of money. And it just never clicked in her head that this is too good to be true. She was making a lot more money than she had ever made, but these were her friends and she trusted them.
And the line that owner, that promoter kept using was, “It’s our time.” These were people in the Latin community. And they kept saying, “The Jews controlled the money and now it’s our time. We’re going to be rich now.” Where they came up with that theory, God only knows, but that’s how they suckered their friends into thinking like, this money is due to us. “This is our time.” They just kept repeating that over and over.
And this woman fell for it hook, line, and sinker, and ultimately had to return a lot of money. And she was in complete shock and disbelief that her friends had done this to her and put her in this situation. She felt so betrayed. Emotionally, I can’t even imagine what she went through. That was the highest form of emotional damage that I saw in these cases.
On the other extreme, I’ve had cases where the investors sort of had an inkling, but things were going well and they were getting money, and they would put in more money and get more money. And they just figured the music would stop eventually, but they were happy with the returns they were getting and they kept referring friends and kept putting money into the scheme.
But most people don’t realize — it’s not just “I’m putting money in and I’m getting money” or “I’m net positive, so I’ll put a little more money in and I’ll make a little more.” There will come a point in time where you’re going to get a demand letter from a lawyer or a receiver saying, “Okay, now give it all back.” Most people never have that realization until they get that letter.
Stephan Shipe: Do most of these schemes start off as legitimate and then somebody’s falling behind on investments or something and they’re trying to make up for it? Or do you find that most of them are starting off from day one as there’s nothing legitimate going on here?
Daniel Gielchinsky: Yeah, it’s a great question. Madoff in my mind started off as legitimate and did really well for a really long time and beat the market. And in his mind, he became this sort of mythical figure who couldn’t be beat. And he wanted to continue that reputation. It was so important to his ego to not lose that, that he went to the dark side and it became an illegal, fraudulent scheme.
And that went on for decades too, because nobody could believe that Bernie Madoff was going to do something illegal. This guy was the head of Nasdaq. His reputation was stellar. But nobody beats the market for that long.
I would say he’s the exception to the rule. That is the only situation I’ve ever seen that started as legitimate and crossed the line onto the dark side. Every other case I’ve seen — and I’ve seen a lot of them — started with ill intent, and the promoters from day one had a nefarious intention behind the scheme that they were about to perpetrate.
Stephan Shipe: So you’d mentioned that a lot of people come to you too late. When should somebody show up, right? I imagine if I’m sitting there holding an investment and I’m having a hard time getting my money out, or things are starting to be fishy, I’m giving you a call and saying, “Daniel, can you at least look at this and make sure everything seems okay from your perspective?” Is that the time? Should it happen earlier? So what’s the earlier thought there?
So I come through, I take the sales presentation. It’s fantastic. I love it. Everything’s working well. I’m excited about it. I’m telling my friends that I’m invested in this really cool fund. They should go check it out, right? All of these things. When should I start looking out to you and saying, I’m starting now internally as an investor to reach out to somebody to check this out?
Daniel Gielchinsky: Before you spend a dollar. Before a dollar leaves your pocket to go into this investment opportunity, you should absolutely consult with a lawyer who’s experienced in these types of things and say, “Can you do a little due diligence on this transaction?”
If you give me 10 hours on any investment opportunity, I can tell you whether it’s legitimate or not. Do the diligence. Look up the real estate. If it’s a real estate portfolio, look up the real estate. Who owns the real estate? A lot of times people are walking around with these slick brochures and saying they own all this real estate. Just do a title search. Who owns it? Or go on the county website and see who owns it. Who owns the real estate? It’s such a simple, basic question that a lot of people don’t know how to answer because they don’t know how to access the right portals and tools that are available publicly.
So, I mean, that’s step one. And if it’s crypto, we have ways of verifying the accuracy of that information too. So 10 hours of due diligence ought to be sufficient in most cases for an experienced lawyer to take a look at an investment opportunity and tell you whether it’s legitimate or has badges of fraud. Before a dollar comes out of your pocket, spend a little money to make sure, do some due diligence, and make sure the investment opportunity is legitimate.
Stephan Shipe: That is great advice for any type of investment. When you start getting out of the public markets, you start seeing all these different returns being thrown around and estimates and fancy models, things start to get a little shaky — what IRRs are expected and everything else.
Right now with what you’re seeing, because I imagine this comes in waves, right? It’s the new hot thing, you start to see a lot more of it because people are trying to jump into that asset class or anything. What are you seeing now?
Daniel Gielchinsky: I’m sitting in South Florida, as you probably see, so everything here is real estate-centric. So there will never be a shortage of real estate-related Ponzi schemes in South Florida. Everyone’s trying to get in on South Florida real estate, and a lot of this stuff we see just coming in and out is promises of returns based on either new real estate development or redevelopment or some other repositioning types of opportunities. We will never run out of that.
Exotic cars are a fun one. We do see in South Florida promises of returns based on alleged floor financing of exotic cars. Or sometimes it’s people who are thinking they’re buying an exotic car and really three or four people have already bought the same car. We’ve seen some of those.
And crypto. Crypto’s just going up and up and up. We’re seeing an increase in that asset class of people being defrauded and being duped into these Ponzi schemes with promises of returns in crypto, where the truth is there never was crypto, or there was very little crypto, or people thought they had a wallet and they really didn’t. They were just getting a made-up statement. I would say crypto is probably the hottest emerging market for Ponzi scheme perpetrators right now.
Stephan Shipe: One last thing related to that. When you’re looking at real estate, this comes up a lot for us — the real estate syndication deals. “We’re going to develop this.” Where do you draw the line from where something is fraudulent versus just negligence, in the sense of — I know you’ve seen them as well — you get some of these pitches and everything’s spelled wrong or the math just doesn’t add up. And it doesn’t look as much fraudulent as that the people who are running this have no idea what they’re doing. Where does that line get drawn, or is there a line there at all?
Daniel Gielchinsky: First of all, it doesn’t matter because in either instance I’m going to tell my client not to put their money down.
But where I’ll see that distinction is in a well-funded deal versus a non-well-funded deal. Where you have promoters who don’t really know what they’re doing, and there’s lots of misspellings and they haven’t quite done the due diligence and the ideas aren’t well thought out — usually the people who are coming to me are the angel investors who are being asked to put first money in, or there’s very little money already raised. They’re being asked to come in and close a tranche of financing, and there’s a reason for that. The promoters don’t know what they’re doing and they’re not able to really raise sophisticated investments.
Conversely, when it’s a Ponzi scheme, there will already be two, three, four million, ten million dollars of money committed to the scheme. And now someone’s being asked to join something that’s already kind of hot and it’s already running down the rails.
Stephan Shipe: Gotcha. This has been fantastic. This is a topic that comes up regularly — people getting nervous, especially getting into alternative asset classes and moving away from the public market. So thank you so much for coming on today and sharing some of that experience that you have.
Daniel Gielchinsky: It’s my pleasure. It’ll never run out, and you’ll never replace me with AI. It’ll never run out. But it literally brought me to South Florida and I’ve just been knee-deep in it ever since. So every time there’s a new one, I’m like, “Okay, what did they do now?”
Stephan Shipe: Definitely. Well, that’ll be good. When you have some good new ones, let us know. We’ll have you on, and you can share some of the latest of the Ponzi schemes surrounding South Florida.
Daniel Gielchinsky: I absolutely will.
Stephan Shipe: Perfect. All right. Well, thank you so much.
Outro
Stephan Shipe: Hey, this is Stephan Shipe. Thanks for tuning in to the Scholar Wealth Podcast. If you have a question you’d like us to tackle on a future episode, share it with us at scholaradvising.com/podcast. We’d love to hear from you. Until next time.
Disclosures: The information provided in this podcast is for general informational and educational purposes only, and is not intended to constitute financial, investment, or other professional advice. The opinions expressed are those of the hosts and guests and do not necessarily reflect the views of any affiliated organizations. Investing in financial markets involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, you should consult with a qualified financial advisor who can assess your individual financial situation, objectives, and risk tolerance.