A con-artist or an investor


2

I have two potential investors: 1) My uncle - a trusted and wealthy family member and 2) "M.S." an unknown person that approached me after having heard my pitch and was "instantly enamored with my concept"

M.S., although basically being in retirement, runs a company that coordinates the mergers of medium size, and medium age companies - basically giving them an exit strategy. However, he heard my social networking pitch and was very taken by it because he had seen the problem I was addressing so often in his life. Even thought this was out of the scope of his normal work, he is interested (despite being 70+) and he believes that his partners (mostly retired CEOs including the former CEO of Crest toothpaste) will also be interested. He has a doctorate in economics, taught at X-town University, and travels too and fro lecturing.

...Next time I meet him, he is still interested (although the other partners are not as interested as he first thought they would be - they tease him for being too easy to help strangers) and he wants to bring in some of his own people for "sweat equity". He says he has a lawyer that could do some of the work in return for a stake in the concept. He says that he has a software development house that can do some of the work... in return for equity. He talked a lot about himself and his adventures in business, and I talked very little. He told me some of his ideas for the future of my concept... but everything was vague. He's an older gentleman, so fine - I respect my elders.

I explained all of this to my trusted uncle, and I showed him the other M.S.'s credentials, and I showed him the other M.S.'s business web site and my trusted uncle said that he thought I was dealing with a con artist. He said that several years back he had been approached by a woman that said she was with a company that consulted medium sized businesses - she helped enable mergers of such companies. The more he spoke with her, the more information she asked for - what tax bracket was he in for example. She said that he paid too much in taxes and that her firm would be able to lower his taxes by $x for a y% cut - this was the con. My uncle turned her down, the next day she showed up in more sexy attire with the same story. He sent her away. Later, he had found others who had been taken in by the con. Apparently, the con artists give you what was promised by the contract, and they take their cut, but you loose through some other tax loophole - usually on the order of tens of thousands. After this first experience, my uncle has been approached by several with similar stories.

So... where does that leave me? There is still a chance that the old gentleman that I'm talking to is on the level. But I don't really know anything about him. He wants me now to sign mutual NDAs so that we can talk openly about our ideas. But, I ain't no dummy... this also means that I can no longer pursue my concept independent of M.S. However if he is a con artist, I still don't know his game. What does he (an old man) stand to gain by signing a couple of contracts with an unlikely business success like me?

How do I determine the truth? How do I keep from being conned? On the other hand, how do I take advantage of a good situation... if that's what this is?

Update Con artist! I asked my other investor, my well-to-do uncle, what his thoughts were, and after looking a M.S.'s web site he told me that this guy was not to be trusted. So that prodded me to look more deeply at his credentials. I found a bullet point in his bio that said he was owner and CEO of some company X that I had never heard of and that he sold it for $Y. It turns out that that company did exist, but in an official, and very descriptive, writeup of the company history, his name was never mentioned. Although there was mention of a different CEO/owner at that the same time.

After I found that I didn't check much further. Everything else now seemed to add up to the same answer. And like they always say, things are obvious red flags now in retrospect.

So I definitely lost an investor... but the fact that my first investor was a con-artist also seemed to have the effect of cooling off my other investor.

Investment Investors Scams

asked Dec 16 '10 at 14:47
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John Berryman
388 points

5 Answers


4

Several years ago I was approached by someone also in his 70s who wanted to partner on a business venture. He had a business website, claimed he had Fortune 500 clients, and that he had XYZ business degrees and professorships. He said he knew Larry Ellison personally. Although I verified some of his professional credentials, others were exaggerated (guest talks do not = professorship), and a little search on LexisNexis revealed a pile of unsavory litigation he was involved in for many years. HUGE red flag and I dropped him immediately. If your "investor" is a con-artist, he stands to gain a lot by stealing your idea, even if the idea doesn't take off. He'd just threaten litigation for reason X or Y, likely stipulated by something in his NDA and scare you into settling. Of course, it's probably all hogwash and he can't afford the legal fees, but that still puts you in a very bad position and might subject to further harrassment.

Do some background research on him. Verify those nameplate credentials but ask yourself more questions. What's his actual history of funding people like you and ideas like yours? Is he involved in any outstanding litigation (or worse, does he have a criminal record)? If you have a friend in law school or LexisNexis Access, this kind of research should be easy. I have access, in case you need a little help with that.

If he's genuinely interested in working with you he should be open to fielding some similar questions about his experience investing in the field. Btw, ask to meet his lawyer and any other people he wants involved. All this should come before any talk of NDAs.

Yellow Flags I see already:

-He tells you he'll get other big-shot CEOs involved and then he says they're not interested. Not only does this sound like he's blowing smoke, but even if he does know those folks somehow, he sure doesn't sound like a persuasive business leader.

-I agree with the above on the NDAs. I don't know why he's in such a hurry to sign mutual NDAs since the main idea was originally yours. What is he even trying to protect? Fishy, even if he might expire before the NDA does xD

-How is he an "investor"? He has all these connections and a business yet he only asked for sweat equity? Has he even talked about putting down real money? If he's still struggling for success at the age of 70, that tells you a bit of how he has handled past ventures even if they're legit.

answered Dec 16 '10 at 17:43
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Henry The Hengineer
4,316 points
  • read update if you're interested – John Berryman 9 years ago

4

A lot of good answers above about being caution, and they're all correct. However, I'm surprised I don't see anyone telling you to call his hand.

So, he's talking about the big-shots he knows – ask to see them, and then research them. He's talking about the software development house – meet with them. Ask for their references, do research on them.

Been in various startups for the last 15 years, I've seen this both in legit investors and in people who're more of con-artists. (Although less often in legit investors). Some people like to tell you how important they are – and that's ok. But if they're for real, they'll be able to show their hand, let you meet with other people for free, etc.

I'd put my bet on this being a con-man, but you'll never know unless you actually see his hand. And you can do that without risking anything. If he starts stalling and nothing checks out, just blow him off.

answered Dec 16 '10 at 20:17
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John Sjölander
2,082 points

1

Thats a interesting story John. hmmm taking a few steps back, i think in general life and after twelve years of experience, i found people with a certain des-interestedness quite honest and fair. While extremely-obvious-interested actually were fraudulous. Difficult to get a clear picture unless you know someone better. Here are some of my advices what I would do in this situation if i were you:

  • Dont Gamble Dont make descisions when you are uncertain/unsure/dont know all your cards.
  • Know your investors a bit better, first Check more information, before signing any papers. Its like a marraige: would you sign any papers with a girl you dont know very well?
  • trust your own instincts above all some information is not expressable by words, yet you can feel something is right or wrong by sensing the vibe in a moment. the attention, warmth, fakeness, sexyness etc... usually it are those things that give someones true good/bad wishes for you away!
answered Dec 16 '10 at 17:02
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Sam
111 points
  • I would probably discount sexiness in this particular situation, unless the social network has to do with dating, well maybe... :) – Henry The Hengineer 9 years ago

0

Trust your gut. Even if posts here can give you a strategy to sort through this, I suspect you will never feel comfortable with him.

answered Dec 17 '10 at 16:29
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Mitch
659 points

0

...his partners (mostly retired CEOs including the former CEO of Crest toothpaste) will also be interested. He has a doctorate in economics, taught at X-town University, and travels too and fro lecturing.

How do you "know" all of these things about him? Always be wary of someone who makes unverifiable claims about their connections or experience.

A legitimate founder or investor will understand that you aren't going to commit to anything at this stage. Read the NDA thoroughly: if it really says that you are no longer the sole owner of your idea run away. If it is just an agreement that he doesn't have the right to share your idea and you don't have the right to share his, then it's probably okay.

I don't have enough info to know whether this man is a con artist, an experienced entrepreneur, or a well-meaning fellow who doesn't get that being genuine is more important than seeming impressive. However, I'm not sure how much it matters at this stage.

If you can't trust someone, working with them in any long-term way will eventually blow up. If I were you (assuming you had concerns based on your own gut, not just your uncle's anecdote), I'd kindly let the gentleman know that you don't think the two of you are the best possible fit, and move on.

answered Dec 16 '10 at 15:43
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Hedge Mage
1,438 points

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