Your guide to running successful scams and frauds

This week as I was thinking of what to write, I saw that all the links I had saved were about frauds and scams. So, I thought I’d give some tips and advice to aspiring honest scammers and frauds. I hope you enjoy reading this edition of the Tipsheet as much as I enjoyed writing it.

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The golden age of fraud

The good thing about the internet is that it has democratized the ability to scam people. If you went back in time, say to the ’50s and ’60s, being an honest scamster was incredibly hard. You had to search for your marks, build a following, travel a lot, wait a long time, and then pull off the con. It was backbreaking hard work. But today, thanks to the internet, the entire world is your oyster. And we are in the midst of a golden age of fraud, as Jim Chanos puts it:

A 10-year bull market driven by central bank intervention; a level of retail participation in the markets reminiscent of the end of the dotcom boom; Trumpian “post-truth in politics, where my facts are your fake news”; and Silicon Valley’s “fake it until you make it” culture, which is compounded by Fomo — the fear of missing out. All of this is exacerbated by lax oversight. Financial regulators and law enforcement, he says, “are the financial archaeologists — they will tell you after the company has collapsed what the problem was.” All in all, it’s “a heady witch’s brew for trouble”.

Jim Chanos/FT

And we’re seeing a grand demonstration of the talent. As a fan of all things scams and frauds, I feel incredibly proud of all the talented fraudsters and scamsters who are doing some amazing work out there. If you’re one of those people shocked that I seem to be admiring frauds – I just have one question. Do you want to make money or quibble with trivial nonsense like morals and ethics?

Here are some amazing frauds that ended, but you can learn from the mistakes.

If you have expertise with livestock and aspire to be a livestock scammer, you can learn from the case of Cody Allen Easterday. Cody was a smart & ambitious fellow who built Easterday Ranches and Easterday Farms. He farmed over  22,500 acres and had a huge cattle operation too. In 2019, he had also bought a 7,228-acre dairy. As part of his ranch, he used to serve food companies that needed cattle. The food companies would contract Cody to purchase, feed and maintain cattle until they were ready for slaughter. Tyson Foods, a company with $43.19 billion in revenue last year, was once such a customer.

He had been doing this contract ranching for a while with no problems until he got greedy. Tyson Foods recently found out that they had been billed for 200,000 cattle that didn’t exist. The total damage to Tyson and another unnamed company was over $200 million. So what went wrong?

Cody used to trade commodity futures to hedge prices of Cattle etc., given that he was farming over 22,500 acres. And by all accounts, he was good at it, but he got too greedy and started gambling, and shit went wrong. He apparently booked losses of over $200 million.

His defense attorney, Carl Oreskovich of Spokane, said that as part of his business dealings, Easterday started trading on the commodities market as a hedge against losses inherent with the up-and-down cycle of agriculture markets. “He did that successfully for a lot of years,” Oreskovich said. “But he became addicted, like a gambling addiction, to commodities trading and engaged in some very large transactions of millions of dollars, and lost money.” Like many problem gamblers, Easterday believed he could trade his way back into profits, Oreskovich said. But his losses grew.“Unfortunately, he covered his market losses and engaged in some false billing practices,” Oreskovich said, “all with the thought that he would make it all back and pay everyone.”


And once Tyson found out about the “ghost cattle” scam, it sued Cody, not just Tyson, even The Chicago Mercantile Exchange (CME), the largest derivatives exchange on Earth. The CME, like every other exchange, has speculative position limits in commodity futures. But the exchange grants an exemption for genuine hedgers who want to trade over this limit. Cody apparently used fake invoices to seek position limit exemption. So, the CME sued him, and he had to settle with the CME.

Specifically, during the post-settlement trading period, Easterday entered orders that partially offset large positions in Live Cattle and Feeder Cattle futures that he accumulated during regular trading hours. Easterday’s post-settlement order quantity exceeded all the quantity in five visible levels of the order book in relatively short periods of time and resulted in significant and disruptive price movements. The Panel further found that Easterday should have been aware that his orders were trading through the visible order book, and understood the potential for volatility before he entered aggressive orders for more than the total quantity showing on the buy or sell side.


So, the moral of the story. If you are an aspiring scammer and a fraud, you have to play the long game. Be greedy, but don’t let it get in the way. And like I explained last time, in frauds and scams, it’s all about the presentation, be it a PPT or real-life interactions. You can’t use flashy unbelievable nonsense. Slow and steady wins the race.

Now, if you believe in stupid things like a conscience, morals or ethics and don’t want to outright scam people but still want to make money, you still can. With crypto becoming popular, it’s a goldmine, and there are a lot of easy people you can make money off without outright scamming them. There are two ways to go about it.

Easy options with a low chance of success.

Create a new Coin and hope to get lucky. It hardly takes an hour to create and launch your own crypto coin (altcoin) like Bitcoin. But, selling a legitimate altcoin is hard. But capitalizing on a trend and launching a gimmicky coin has a higher chance of success. Take Simple Cool Automatic Money (SCAMCOIN), for example; this guy is a genius. He took advantage of the craziness around Crypto and decided to launch a jokecoin, and at one point, the marketcap was over $1 billion (notional). No doubt he would’ve sold some coins and made some money. 

The more outrageous the name, the better the odds. Take the example of CUMROCKET (CUMMIES) token, which is up nearly 17000%+.

But if want to go big or go home

Money laundering is a high risk, high reward option, but you gotta be smart about it. Take the case of Roman Sterlingov. He ran Bitcoin Fog to help honest criminals launder their money.

According to court documents, Roman Sterlingov, 32, operated Bitcoin Fog since 2011. Bitcoin Fog was the longest-running cryptocurrency “mixer,” gaining notoriety as a go-to money laundering service for criminals seeking to hide their illicit proceeds from law enforcement. Over the course of its decade-long operation, Bitcoin Fog moved over 1.2 million bitcoin – valued at approximately $335 million at the time of the transactions. The bulk of this cryptocurrency came from darknet marketplaces and was tied to illegal narcotics, computer fraud and abuse activities, and identity theft.


He took commissions on those transactions of 2 to 2.5 percent. In total, the IRS calculates, Sterlingov allegedly took home roughly $8 million worth of bitcoin through the service, based on exchange rates at the times of each transaction. That’s before factoring in Bitcoin’s massive appreciation over the past decade. 


But he got caught because he had to exchange Euros to Bitcoin and the IRS was able to trace it. Good old traditional financial system ironically led to his downfall, how ironic😂 But not bad, he made nearly Rs 60 crores. This is the risk of a high risk, high reward scam.

As an aspiring scamster, it’s always important to keep your greed in check and play the risk to reward in your favour.

I really loved this excerpt from Ben Carlson’s post on frauds:

If Charles Ponzi were alive today, I have no doubt that he would be able to raise capital from investors, probably in the form of a SPAC. Many investors would laud him for being a genius as he bilked investors out of millions of dollars.

Six-packs but malnourished

From smartphones, smart cars to smart underwear, semiconductor chips are crucial. As more things become smart, the more chips they need. If we need a gadget like a laptop or a phone, we order it off Amazon and don’t really think about what really happens in the background for you to get the laptop. Unless you’re weirdo, in which case thinking about stuff like semiconductors, supply chains instead of swiping right on Tinder is normal.

But, behind all these electronics gadgets lie sophisticated supply chains from raw materials to shipping the finished product that spans the globe. As you happily shop for things online, there’s a global semiconductor shortage that’s affecting everyone from Sony to Volkswagen. Aren’t you ashamed that you aren’t worried about it? What’s wrong with you?

But anyway, the stupid virus, coupled with US-China tensions, demand-supply mismatches, and concentration of manufacturing, is causing a severe shortage of chips, particularly for automakers. In response, several of them have announced job cuts, plant shutdowns and have revenue cuts in billions.

As the world went to work from home mode due to the stupid virus, demand for electronics like laptops, data centres grew while demand for auto chips collapsed. Chipmakers repurposed manufacturing to electronics, but the reopening led to a surge in auto demand, and everyone was caught flatfooted.

Over 80% of the chip manufacturing is concentrated in Asia, with TSMC located in Taiwan accounting for over 50% of all foundries (chip manufacturing plants). This has led to concerns about a Chinese invasion and the potential ripple effects. Here’s an excellent piece on the probable side effects of China taking over TSMC if it invades Taiwan.

As an aside, here’s an audacious story of how a bunch of people without high school education conned a local provincial Chinese. With US sanctions disrupting chip supplies, China wanted to be self-sufficient in chip manufacturing. And a bunch of really talented con artists scammed a local district government into investing billions of Renminbi in a chip manufacturing plant. This one reminds me of the Theranos scam. The moral of the scam, look for opportunities where people are desperate. Desperate people tend not to bother about details.

On the other side

On the other hand, lumber, the most boring thing you can imagine after long-term investing, has had a record-breaking price spike. In the last year alone, prices have shot up by over 350%. On the face of it, the cause seems to be due to the stunning spike in housing prices. But there are deeper issues. We all know we’ll die of climate change. But what we don’t think much about is in all the ways climate change will mess with us before we die. 

“The mountain pine beetle has been a force of nature in this current epidemic,” Cooke said. The beetle has devoured 18 million hectares of forest in British Columbia alone, killing 60 percent of its merchantable pine. The outbreak has been accelerated by “weather associated with climate change,” Cooke said. A series of unusually warm winters has failed to kill the usual number of mountain pine beetles, allowing populations to swell to unprecedented size.

The Atlantic

Barron’s has an interesting piece linking the price spike in both the semiconductors and lumber prices to decades of underinvestment.

Up in smoke

Every season has its cult stock, and in the last 1-1.5 years, ITC has undoubtedly been the biggest. It’s like India’s Tesla. It’s gotten so bad that if you say something negative about the stock on Twitter, you’ll be forced to delete your account. But if you’re anything like me and are on Twitter for fun, ITC has been a godsend. It has led to some juicy catfights among a lot of smart investors.

Google Trends

There are broadly two camps. On the one hand, you have people who think ITC is a serial mis-allocator of capital with buybacks, dividends and exorbitant management pay. On the other hand, you have the deep value crowd which believes all the bad news has been priced in, and the endless investments the company has made in FMCG will start paying off the stock is poised to🚀

Anish and Pravin, in this super ET Prime long read, dive deep and analyse the multiple sins and the hopes of redemption for the stock. If you’re betting ITC to rise from the ashes like a malnourished Phonenix, then this is for you.

Since FY03, ITC has invested INR7,800 crore in FMCG, INR7,100 crore in hotels, and INR1,600 crore in agri. However, these businesses continue to make negative free cash flows (defined as Ebitda minus non-cash expenses minus tax minus capex). Since FY03, the cigarette business has generated cumulative free cash flows of INR88,800 crore, while the FMCG, hotel, and agri businesses had cumulative negative free cash flows of INR81,300 crore.

If you are asking my opinion, people who’ve known me know that I regularly lose to monkeys🐒 when it comes to picking stocks. But I’d still err on the side of caution. If a company is notorious for torching capital, then turning around is harder than investors assume. In such cases, if the company does turn around, the upside will be phenomenal. If not, you’ll hear your granny saying, “maine bola tha paise FD me rakh”.

8 reads

From tulips and scrips to bitcoin and meme stocks – how the act of speculating became a financial mania

Do you have an investing edge?

In Praise of Bitcoin

The Scarcity of Money Myth

How Pfizer Makes Its Covid-19 Vaccine

Joachim Klement, CFA: Three Geo-Economics Trends to Watch

Understanding that more is not necessarily better

Most Decisions Won’t Ruin Your Life 

Laugh a little

These are tough times. I don’t know about you, but the constant reminders of my impending death are fucking freaking me out. Given these dark and dreary times, having a good laugh is more important than ever. I’m a huge fan of George Carlin, one of the greatest stand-up comics of all time. His observations of all the inane shit we humans do are genius. So, if you’re stuck at home thinking if you’ll be alive tomorrow, stop that nonsense and watch this, have a laugh.


That’s it for this edition. Stay safe folks, don’t try to smooch people and don’t go around sneezing on people’s faces as a prank. Stay safe and this stupid fucking virus will die a miserable dog’s death soon.

What did you think about this edition?

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