Franchise restructuring ‘nauseating’

April 11, 2008

Meanwhile back in New Zealand, the Blue Chip fiasco is turning stomachs. Over 3,000 residential investors are owed +$70-million by 21 related insolvent companies.

Property investor Olly Newland says plans by the parent Blue Chip company to restructure itself and raise more money in Australia are “nauseating”.

“They’ve just cut loose all the poor people here,” Mr Newland said.

“It’s a shocking look. They’ve shown no remorse at all for what they’ve done and they are not the slightest bit interested in fixing it by the look of it … It doesn’t sit well with me,” Mr Newland said.

In a related story Blue Chip seeks money as empire crumbles, an investor comments:

Blue chip have left me with a morgage of Two Hundred and five thousand

I am 66 years old might not have a home any more very had having to pay 350 a week They told me I would never lose my home and lots of lies Cant sleep on my own and cant stop crying


The Philosophy of taking a Loss

March 28, 2008

The Sting, 1973 movie, 7 Academy awardsThis is a very interesting article picked up by an excellent law weblog. In Cooling the Mark Out, sociologist Erving Goffman says:

The confidence of the mark is won, and he is given an opportunity to invest his money in a gambling venture which he understands to have been fixed in his favor The venture, of course, is fixed, but not in his favor.

The mark is permitted to win some money and then persuaded to invest more. There is an “accident” or “mistake,” and the mark loses his total investment.

The operators then depart in a ceremony that is called the blowoff or sting. They leave the mark but take his money.

The mark is expected to go on his way, a little wiser and a lot poorer.

Of course, sometimes something wises the victim:

In order to avoid this adverse publicity, an additional phase is sometimes added at the end of the play.

It is called cooling the mark out.

After the blowoff has occurred, one of the operators stays with the mark and makes an effort to keep the anger of the mark within manageable and sensible proportions. The operator stays behind his teammates in the capacity of what might be called a cooler and exercises upon the mark the art of consolation.

An attempt is made to define the situation for the mark in a way that makes it easy for him to accept the inevitable and quietly go home. The mark is given instruction in the philosophy of taking a loss. [my emphasis]

Brilliant. Check out the rest of Michael Webster’s excellent weblog, The Bizop News. It is a must read if you want to understand the psychology and law of fraud.

The original article, On Cooling the Mark Out: Some Aspects of Adaptation to Failure, University of Chicago.

Fascinating and very applicable whenever the fraud sausage explodes, to use one of Michael’s vivid expressions.

Intentional corporate insolvency

March 25, 2008

Corporate grim reaperStuff in this life happens for a reason.

And the only reason anything in business happens is to make a return for those that are in control.

All corporations are born, mature and die: They have a lifespan. Some natural; Others not so much.

What many people fail to appreciate is that many businesses are assisted in their own suicide to avoid paying out their creditors and investors (once the cash is safely off-shore, mind you).

Weak or non-existent insolvency laws make it very profitable for fraudsters to take in money in Corporation1, transfer it to Corporation2 (and elsewhere) and then have accountants, corporate lawyers and consultants kill Corporation1.

This parts investors from their money. Usually 100% legally.

  1. Any liquidator that doesn’t admit that corporate euthanasia happens frequently is either a liar or a scoundrel or both.
  2. If a government fails to provide a law, then this Intentional insolvency trick is perfectly legal (ie. no lawsuit will remedy the loss).

Ever wonder why the fiddlers don’t even bother to flee the scene of the crime? The joke is on you as an investor: There haven’t been any laws broken.

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