With asset recovery funds, most of the investment risk is in financing asset location and reclamation efforts, which might not always be successful. Little says liability is rarely a factor because fraudsters often face criminal prosecution as well as civil suits. The quantum of damages is not an issue because the victims know how much they've lost. "We only worry about collection risk and it's not a binary bet. If somebody steals a billion dollars, they don't put it in one bank account. They put it in thirty bank accounts in 10 different jurisdictions. Every one of those accounts and jurisdictions is one mini bet," he says.
To control for collection risk, Little says Echemus carefully screens cases. After several levels of review, the fund ultimately accepts only five percent of the cases it evaluates.
Several dozen major commercial litigation funds operate globally, but Echemus seems to be unique in financing high-value asset recovery claims. The fund also finances third-party liability claims against financial advisors, attorneys, accountants, broker dealers and bankers who may have been complicit in the skullduggery.
Practitioners can get in serious trouble if they knew, or should have known, that a trust or other entity was being set up for the purpose of defrauding creditors. "It could make them a co-conspirator," says Las Vegas asset protection and estate planning attorney Steve Oshins of Oshins & Associates. To avoid the risk of becoming embroiled in a conspiracy to commit fraud, Oshins recommends that advisors perform careful due diligence on potential clients by interviewing them and having them sign an affidavit of solvency.
Making Money The Old Fashioned Way
Fraud is definitely a high-growth industry. Little says he's seen fraud increase "exponentially" in the last 10 years. While white-collar crime can occur at any time, fraudulent schemes are more likely to unravel and become exposed during periods of economic volatility. For example, an Associated Press investigation found that over 150 Ponzi schemes collapsed in 2009, compared with approximately 40 in 2008.
But it's difficult to estimate the true size of the "market" for fraud. As Little puts it, "There isn't a fraudster's convention where they discuss all the money they've stolen in a given year."