investment scheme

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Investment SchemeInvestment Scheme

Presentation developed to show how a bank should not be held liable for investment decisions made by trust account holders.

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State Bank was not involved State Bank was not involved in investment advice and/or in investment advice and/or

decisionsdecisions


State Bank held “directed custodial trust” State Bank held “directed custodial trust” accounts for the Investment Group...accounts for the Investment Group...

Investors approached Smith and signed documents giving Smith complete control

Investors • Choose to invest in

Investment Group• Designated Smith

as General Partner

Investors


State Bank • Must follow direction of

investors • Provides services for a fee,

does not profit based on performance

• No audit rights


...State Bank is involved solely because of type of funds (IRAs, etc.)



as General Partner

$$$

State BankInvestors



investors • Provides services for a fee,


• No audit rights


...State Bank is involved solely because of type of funds (IRAs, etc.)



as General Partner

$$$$$$

Investment GroupState BankInvestors

DirectionFrom

Investors


Bob Smith • Squanders $$$ as he sees

fit and conceals fraud from everyone


...State Bank gave NO advice or direction as to how the money was invested

$$$

DirectionFrom

Investors


investors• Provides services for a fee,


• No audit rights



as General Partner

Smith

Investment GroupState BankInvestors


Who are the Plaintiffs?Who are the Plaintiffs?



• Wealthy individuals who are sophisticated, knowledgeable investors who presumably know how to properly research investments

• Business associates and friends of Smith

Promises of extremely high investment returns led them to willingly take risks





• Students of Smith’s Investment Theory Classes


Blind belief in Smith and his authority position led to faulty judgment





• Students of Smith’s Investment Theory Classes

...The Plaintiffs made their investment decisions for personal reasons, having NOTHING to do with State Bank


Blind belief in Smith and his authority position led to faulty judgment


How did Plaintiffs make their How did Plaintiffs make their investment decisions?investment decisions?

For whatever reason, the plaintiffs did not follow typical investment practices, and instead blindly followed Bob Smith...


Did the Plantiffs...Did the Plantiffs...

• Thoroughly research companies/entities NO


NO


• Thoroughly research companies/entities

• Perform Due Diligence regarding personwho is making investments N

O


NO



• Perform Due Diligence regarding person who is making investments

• Consider investment strategy — carefully calculating risk and realistic returns

NO

NO


...The Plaintiffs willingly took an enormous and irresponsible risk and are unwilling to accept their own responsibility in the scheme

NO



• Perform Due Diligence regarding personwho is making investments

• Consider investment strategy — carefully calculating risk and realistic returns

NO

NO


Who Should Bear the Loss?Who Should Bear the Loss?

Irresponsible investors who willingly accepted the risk that Smith would “lose all the money” or trust companies that were providing a legitimate service?

...The Plaintiffs should bear the loss

investment scheme

Documents

investment decisions

investment schemepresentation

high investment returns

comstate bank

knowledgeable investors

bob smith squanders

state bankinvestorswww

state bankpromises