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By Michael E. Russell

Michael E. Russell

My wife Barbara and I were lucky enough to spend the past week in Vermont. A respite like this gives one the chance to see what is occurring in the economy from a different perspective.

Sitting on the front porch in the morning I watched truckers hauling lumber and building supplies up and down the road. I decided to check out the nearby diner to hear what the local populace had to say. It sure sounded familiar: prices on the rise, shortage of employees and a real concern as to the direction the country was headed.

However, restaurants were full, many of whom were New Yorkers! Other tourists were taking in the beauty of southern Vermont.  So where are we?

The Federal Reserve is expected to raise short-term interest rates by three quarters of a percentage point later this month. This will lift the benchmark rate to approximately 2.5%. The probability of another one percentage point rate by the year’s end will hopefully cool down inflation which is approaching 9%.

The market has looked favorably on the current moves by the Federal Reserve that were done over the past two weeks. In the short-term there have been some widespread commodity-price declines and other signs of inflation slowing.

The bond market has responded in a positive way. The yield on the ten-year treasury has decreased by one quarter of a percentage point. It currently is at 3.1%, down from 3.1 in early June. This includes a 2% increase in the past week alone!

The S&P is currently projecting earnings for 2023 at under 16x earnings. The 2022 earnings is close to the same number. What this says is that the current 2022 projection on the earnings yield which equates to profits divided by the current index level is close to 6%, twice the ten-year treasury yield!

Looking at other indices is showing that that there may be opportunities in area other than the S&P 500, which most investors follow.

The S&P small cap 600 is currently priced at less than 12x estimated 2022 operating earnings. This a number that hasn’t been seen in a long time. This index and corresponding exchange traded funds may provide for portfolio growth.

As I have mentioned in past articles, the money center banks have provided dividend yields ins excess of 3%. These dividend yields have given support to their stock prices.  Bank of America, Goldman Sachs trade at near book value. Citigroup, which has improved its balance sheet by controlling expenses and increasing its net interest income, is trading at half its book value.

Even though short-term earnings are not looking robust due to a drop in mortgage origination fees and weaker investment banking opportunities, all dividends appear secure.

What is Warren Buffett up to? This week he added to holdings in Occidental Petroleum through Berkshire Hathaway. He now owns close to 20% of the company in a stake worth more than $20 billion.

By the way, Berkshire Hathaway is holding close to $100 billion in cash and cash derivates I expect Buffett to put several billion into picking up value stocks.  As an aside, the $100 billion in cash will give Buffett a profit in excess of $5 billion annually. NICE!!!

In summary, where are we? Not exactly sure. West Texas Crude Oil has dropped to $98 a barrel, some “experts” are projecting a drop to $65. We can only hope! Mortgage rates have dropped to 5.3% and the June jobs number beat expectations.

Boris Johnson is gone, Elon Musk says no to Twitter, Janet Yellen threatens China with sanctions, China threatens Taiwan, etc, etc. Now Monkey Pox!!! Can we just catch a break and enjoy the rest of the summer? Sure hope so. Until next time.

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

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By Michael E. Russell

Michael E. Russell

It has been a tumultuous 90 days. Investors are currently on the path to seeing one of the worst years in stock market history. This statement was made by several strategists at Goldman Sachs on CNBC.

This could be considered a reasonable position to take, but why? Well, to point out the obvious, stocks and bonds are off to a horrible start, while consumer prices continue to increase. Also, no baby formula!

If you extrapolate this bad news to the end of the year-even though we are barely halfway through Spring, diversified investors may see the potential for significant losses after inflation.

I take a less dire view. Big stock downturns are normal. Over the last 72 years, the S&P Index has fallen more than 20% from its high on ten different occasions.

There are many differences about this decline. The current decline is approximately 18% from the January high. The major difference is that the current decline has occurred after a market that never seemed to stop going up.

Another interesting point is that during the career of Warren Buffett, the average Bear market has taken about two years to go back to even, while a few have stretched to four years or more.

How about this statistic: the NASDAQ has been positive every year since 2008 UNTIL this year!

My take is that expectations need to change. Crypto currencies have fallen off a cliff. Some investors think it wise to buy in at these lower prices. I disagree. Until Crypto currencies are regulated, losses could be devastating. A case in point is Crypto exchange Coinbase Global which totally missed earnings estimates. The company stated that customers could lose their assets if it were to declare bankruptcy.  Coinbase CEO Brian Armstrong tweeted a clarification, saying “we have no risk of bankruptcy.” 

Unfortunately, I remember the same statements made by the CEO of ENRON.

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A Georgetown law professor recently spoke of crypto bankruptcy risks. His point was that even though the contracts say you own the currency, you have the potential of being a general unsecured creditor if there is a bankruptcy.

For those with strong stomachs, there are plenty of companies with strong cash flow, good growth potentials and decent dividends. Never flee the market. Historically, the stock market outperforms most other asset classes. Domestic stocks represent the businesses that keep America strong.

An interesting point was advanced by Vanguard. They recently calculated that since 1935, U.S. stocks have lost ground to inflation during 31% of one year time periods, but only 11% of ten-year cycles.

I believe investors could begin to add to their portfolios shortly, with the caveat that this market may still have some downside risk. However, keep in mind that the S&P was trading at a P/E of more than 21x in January while currently trading at 17x earnings. Some technical analysts believe that the bottom line may be 15x.

Trying to time the bottom line is futile.  Keep in mind that the average annual return for the S&P since 1988 is 10.6%; 34 years of growth.

The view espoused at Morgan Stanley is that there may be a little more downside risk. But Lisa Shalett, Chief Investment Officer, states that segments of the market are priced. For upside surprises, these include financials, energy, healthcare, industrials and consumer service companies.

We still must be concerned about Russia/Ukraine and China/Taiwan.

In my next article I will mention some stocks with good growth potential. Hoping for a market bottom soon!

Until then, enjoy the rest of Spring and stay healthy.

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

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By Michael Christodoulou

Michael Christodoulou
Michael Christodoulou

As an investor, you can easily feel frustrated to see short-term drops in your investment statements. But while you cannot control the market, you may find it helpful to review the factors you can control.

Many forces affect the financial markets, including geopolitical events, corporate profits and interest rate movements — forces beyond the control of most individual investors. In any case, it’s important to focus on the things you can control, such as the following:

Your ability to define your goals: One area in which you have total control is your ability to define your goals. Like most people, you probably have short-term goals  — such as saving for a new car or a dream vacation — and long-term ones, such as a comfortable retirement. Once you identify your goals and estimate how much they will cost, you can create an investment strategy to help achieve them. Over time, some of your personal circumstances will likely change, so you’ll want to review your time horizon and risk tolerance on a regular basis, adjusting your strategy when appropriate. And the same is true for your goals — they may evolve over time, requiring new responses from you in how you invest.

Your response to market downturns: When the market drops and the value of your investments declines, you might be tempted to take immediate action in an effort to stop the losses. This is understandable.  After all, your investment results can have a big impact on your future. However, acting hastily could work against you. For example, you could sell investments that still have solid fundamentals and are still appropriate for your needs. If you can avoid decisions based on short-term events, you may help yourself in the long run.

Your commitment to investing: The financial markets are almost always in flux, and their movements are hard to predict. If you can continue investing in all markets — good, bad or sideways —you will likely make much better progress toward your goals than if you periodically were to take a “time out.” Many people head to the investment sidelines when the market tumbles, only to miss out on the beginnings of the next rally. And by steadily investing, you will increase the number of shares you own in your investments. And the larger your ownership stake, the greater your opportunities for building wealth.

Your portfolio’s level of diversification: While diversification itself can’t guarantee profits or protect against all losses, it can help to greatly reduce the impact of market volatility on your portfolio. Just how you diversify your investments depends on several factors, but the general principle of maintaining a diversified portfolio should govern your approach to investing. It’s a good idea to periodically review your portfolio to ensure it’s still properly diversified.

The world will always be filled with unpredictable, uncontrollable events, and many of them will affect the financial markets to one degree or another. But within your own investment world, you always have a great deal of control — and with it, you have the power to keep moving toward all your important financial objectives.

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC

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By Daniel Dunaief

Daniel Dunaief

If I knew exactly when Russian president and peace shatterer Vladimir Putin were planning to attack Ukraine, I could be spectacularly rich.

Putin, however, knew exactly when he was going to give the order to start shooting, causing markets around the world to plunge.

No stranger to making a buck or two, Putin, whose wealth is estimated in the billions, may have seen the opportunity to create suffering for everyone else, while making himself even richer.

Have options markets around the world checked the trading just before the day he started killing people in Ukraine? Does anyone know whether he, through shell companies or, perhaps even more directly, through trades he holds in his own name, made a financial killing by destroying neighborhoods and shattering peace on a scale not seen since World War II?

Maybe he positioned his portfolio just as he was moving his military. He could have also dabbled in the commodities markets, where wheat, aluminum and gold prices have soared.

While the Russian president may not need the money personally, he could offset some of the effect of sanctions through the equivalent of his own “big short” on stock markets, betting in a game he helped control that the markets would fall.

Putin could have gone to stock markets outside of Russia, where he could have set up huge trades just a few days before a move the previous president of the United States described as “genius.”

Perhaps Donald Trump, who is also no stranger to capitalizing on financial opportunities, recognized the financial move Putin was making. Putin doesn’t appear to care much about the people he’s displacing or the Russian soldiers who may no longer return to their families to pursue a war against a neighbor whose biggest offense seems to be that they live in a democracy and want to join NATO, whose members consider an attack against one of them as an attack against all of them. As the “Between You and Me” column in these papers from last week made clear, Ukraine has abundant natural resources, which raise its appeal to Putin. At the same time, though, maybe he also saw this move as a chance to make money and to stay relevant.

It’s not every day that people write your name, even if it’s for nefarious actions, in papers throughout the world. Sitting on a stockpile of nuclear weapons that could easily turn Global Warming into a distant afterthought if he and his intended targets used them, Putin is dominating news coverage around the world, displacing COVID. Too bad there’s no vaccine for the world’s population against Putin.

By putting his nuclear forces on high alert after disrupting peace with his attack on Ukraine, he also gets to play bully and victim at the same time. He’s a bully for sending his armed forces into a neighboring country and killing men, women and children. Bullets don’t discriminate between innocent civilians and members of an opposition’s armed forces.

He is also a victim, claiming the heated rhetoric against his military’s unprovoked attack is enough of a threat to him that he needed to put his nuclear arsenal on high alert. His despotic desperation suggests maybe he needs a hug or some counseling.

He also defies logic by calling the Jewish president of Ukraine, Voldymyr Zelenskyy a “neo-Nazi,” when some of Zelenskyy’s own ancestors died in the Holocaust.

Putin may not make sense, but, at least in the first few days after his unjustified attack, he may be making tons of money.

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By Michael E. Russell

Michael E. Russell

As I sit here on Sunday morning pondering what I would recommend to readers, I find myself in a quandary.

Ukraine is in the forefront of the news, while Canadian truckers are being arrested and having their bank accounts taken due to their opposition to Trudeau and his position on masking and vaccinations.

Is it time to put money to work during these uneasy times? Emotionally an investor could think not. History says otherwise.

Once again, the reader only has to look back in time and realize that sound investment decisions can be made at any juncture. 1929, 1952, 1987, 2001, 2002, 2008. These dates were extremely stressful to the investor. Sell, hold or buy? DECISIONS, DECISIONS!

Today, it is more of the same. Companies that we have mentioned are still financially strong with solid balance sheets. Yet, they are being punished by this market! Do we sell shares in these companies while earnings are robust?

Is 5G now a passing fancy? Not so.

Increasing interest rates will bolster the balance sheets of many Money Center and Regional banks. It is fair to say that even though the ten-year treasury is now yielding 2%, our checking and savings accounts are still yielding close to 0%! Thus, bank earnings and balance sheets are stronger than ever.

I believe that based on past history, investors should think about adding or starting a position in some great companies. Dollar cost averaging is a smart way to start or increase your positions. Emotion should not play a part in selling a stock. 

Banks need to watch their loan portfolios and manage the risk as to their non-performing loans.

We are all aware of the supply chain problems thus effecting the costs of goods and services.

With all of this in mind, we need to remember a basic tenet; try to have enough liquidity to cover 6 months of household and business expenses. It is especially important now to monitor your debt load due to higher interest rates.

Let us look at some stocks that have been mentioned before. Qualcomm is certainly a quality investment at these levels, even during this volatile market period. It is reasonably priced with a P.E. ratio of 14x forward earnings with a solid dividend. Morgan Stanley is another sound investment idea. The company is buying back $3 billion in stock each quarter while paying a 3% dividend. 

Still a favorite is Nvidia. This company has exceeded even the highest expectations of forward guidance for earnings. A great CEO, Jensen Huang, has Nvidia positioned to take advantage in the growth of 5G. For those suffering from cabin fever, look at Disney. Increase pricing power and high occupancy rates at their theme parks suggest good earnings growth.

In closing, let us hope the people of Ukraine will be safe. By the time this article is published we will probably know if Russia has decided to invade.

Be safe and stay healthy. 

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

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By Daniel Dunaief

Rain can put a damper on life, as the two children at the beginning of Dr. Seuss’s The Cat in the Hat shared and as the itsy bitsy spider that went up the water spout only to get washed out again discovered.

As it turns out, rain, clouds, wind and foul weather can reduce the trading decisions of people who buy and sell large sums of money in stocks, as they grapple with their own reactions to clouds that they’d like to go away and come again some other day.

Danling Jiang

Danling Jiang, associate dean of research and faculty development in Stony Brook University’s College of Business; Lin Sun, Assistant Professor at George Mason University; and Dylan Norris, Assistant Professor at Troy University recently published a study in which they explored the effect of cloudy or inclement weather in the two weeks before an earnings surprise on investor reactions.

Every three months, public companies provide a detailed disclosure of their profits and losses, giving investors a chance to look over the equivalent of a quarterly report card.

Like helicopter parents who monitor every line, sentence and word in a report card, institutional investors tend to have a stronger reaction, either positively or negatively, if those numbers are considerably different than they expected. An “A” in advanced calculus might be like profits that exceed estimates by 10 percent, while a “C” might be the equivalent of an unexpected loss in a business that had been doing well.

As it turns out, institutional investors are less likely to react as strongly, at least initially, to an earnings surprise if the skies in the two weeks before they review the earnings announcements are cloudy or unpleasant.

“We find strong supporting evidence in our empirical tests which reveal increases in the pre-announcement unpleasant weather of institutional investors results in muted immediate market responses to earnings news and amplified port-earnings-announcement drifts,” Jiang explained in an email.

Over the course of two to three months, the stock price reflects a more typical pattern that aligns with the direction of the earnings surprise.

The researchers published their work in the Journal of Corporate Finance.

These results, which came from an analysis of reactions to earnings surprises from 1990 to 2016, validate and extend previous efforts to understand how weather affects investor decisions.

Earlier studies revealed the effects of weather on individuals’ psychological and physiological states, according to Jiang.

“These effects have also been shown to influence financial decisions and security prices, even through the actions of sophisticated market participants such as market makers and security analysts,” she said.

The three academics started working together when Lin and Jiang were faculty and Norris was a PhD student at Florida State University.

“We were fascinated by the idea present in prior research that weather seems a perfect exogenous shock to investor psychology and physiology,” said Jiang. “This exogenous feature allows us to draw some causality of psychology on market pricing in a new setting with institutional investors and earnings announcements.”

The researchers chose the years 1990 to 2016 because they had the data in their possession.

“We tried to ensure that our sample period was long enough to confirm the weather effect was a persistent force throughout time and not merely a phenomenon of a small segment in time,” said Jiang who added that solving the weather-related muted effect by adding brighter lights to a trading floor could backfire, as excessive bright lights can have negative effects.

“Overillumination can cause fatigue, stress and anxiety,” she explained. “It is also likely that most traders are subject to the weather at some point during the day” through arriving at work, leaving for lunch or glancing out the window. That means the weather still likely influences them even when they may be in a brightly-lit indoor setting.

The researchers used two measures of weather conditions. One integrated wind, cloud and rain, and the other used cloud cover only. Both measures produced similar findings.

Using earlier studies and their own research, it appears accounting for the combined effect of simultaneous weather parameters or focusing on cloud cover better captures any physiological or psychological effects as opposed to using wind or rain alone, said Jiang.

Public companies are unlikely to trigger a more muted response to earnings surprises by recruiting investors from areas with greater cloud cover, as prior research demonstrated that seasonal climate norms don’t appear to affect the behavior of investors once they acclimate, so to speak, to the weather.

In addition to the 14-day window to create the weather measures, the researchers generated a seven-day measure that showed similar results.

Announcement day weather may also affect market reactions to earnings news and “we do not discredit its importance,” Jiang said. Indeed, other research has shown that the weather in New York City at the time of an earnings announcement impacts market reactions.

The explanation for the muted reaction to earnings is based on psychological and physiological reactions of institutional investors to weather, including anxiety and sadness as well as fatigue and decreased activity.

“In addition to causing delayed information processing, weather could cause a reduction in energy amongst some traders,” said Jiang

That means institutional investors may struggle with the same factors that made the boy and Sally from The Cat in the Hat struggle while it was “too wet to go out and too cold to play ball. So we sat in the house, we did nothing at all,” Dr. Seuss wrote.

While institutional investors don’t do nothing at all, they are less active, at least according to the recent research, than they are when the sun shines brightly, reliably and more consistently.

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By Leah Dunaief

Leah Dunaief

A friend is planning to retire at the end of the year. His wife is already retired, and we three talked about the future. Since none of us has jobs with pensions, they are understandably trying hard to discern economic trends for the investments they hope will carry them through their golden years. Currently their money is mainly in stocks, which are doing well enough, but they, and the rest of us, have duly noted the disconnect between the stock market and the economy.

The stock market, of course, is not the economy but rather is thought to be one predictor of future economic trends at least six months ahead. There are others as well, and one place to get some insight is the PBS program, “Consuelo Mack WealthTrack.” Mack is the host of this weekly financial program, and in the tradition of “Wall Street with Louis Rukeyser,” which ran on the same channel (13) and in the same time slot (Friday, 7:30 p.m.) from 1970 to 2002, a guest each time discusses with her their area of expertise.

Originally broadcast on Oct. 9, a recent guest was economic guru Nancy Lazar, who spoke of four forces she sees as driving the economy to a powerful comeback. The first is, as you may have guessed, technology, which helps make companies more profitable. Lazar emphasized the importance of reinvestment in their companies by executives in order to stay up to date and to increase productivity.

As an example, she offers the sad story of Sears vs. the strong growth of Amazon. Businesses must keep up or be left behind. Technology, especially software, is a critical driver in a strong recovery. Banks are another example. Their movement to online services has been enabled by software developments and now COVID considerations using that software. And as she points out, the United States is the technology leader.

A second driver is housing, which brings with it so many related businesses and jobs: carpenters, painters, spacklers, roofers, plumbers, electricians, cesspool servicers, landscapers, driveway pavers, furniture and carpeting salesmen, and on and on. Housing is doing well, driven by exceptionally low mortgage interest rates, demand from millennials and now single family homes for COVID refugees from the cities.

A third driver for Lazar is manufacturing. She refers to the Rust Belt as her “favorite emerging market.” Disruption in the supply chains due to the pandemic have made companies aware of how much safer it is to make it here if they are going to sell it here. This has even become something of a national security issue. She counts 176 companies that have moved back to or started up in the United States since the beginning of 2020. States like South Carolina, Tennessee and Alabama have benefited.

And the fourth is capital spending. Lazar believes that the reinvestment that companies have made in their businesses as a result of the huge tax cuts has been underreported and underappreciated. While many companies have indeed increased their dividends and bought back shares, she has tracked reinvestment from some of that windfall and feels that will result in higher productivity, higher profits and more jobs. In order to grow, companies must reinvest, and when they do, the economy grows. A business cycle spurred by reinvestment — building new plants, hiring and training new workers -— lasts 30 years.

Meanwhile, many are out of work and there is a lot of pain. Lazar also recognizes that in every recovery, not all sectors improve. But she advocates for more business reinvestment to produce more jobs and believes that will lower unemployment to half by next year. Without a further stimulus package, she envisions a handoff from government to the private sector as a driver for healing unemployment. Consumers, meanwhile, are turning more conservative, having been hit by two shocks in the last decade: recession in 2008 and COVID now.

While Nancy Lazar is not an investment advisor, but rather an economist, she has pointed out areas that might be ripe for investment. Good luck to us all!

Defendants from Port Jeff, Mount Sinai, Coram, among those indicted

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In a plot that could have been lifted straight from the script of “The Wolf of Wall Street,” six North Shore residents were among 14 indicted in federal court in Brooklyn July 13 for their alleged roles in a $147 million stock manipulation scheme, according to the U.S. Attorney’s Office for the Eastern District of New York.

A press release regarding the indictment alleged the defendants defrauded investors by obtaining shares in five publicly traded companies from insiders at the companies for below-market prices, artificially drove up the prices of the shares, while “aggressively and repeatedly” calling and emailing victims to purchase shares — oftentimes senior citizens — and then sold their own shares between January 2014 and July 2017.

“Manipulating stock prices, as alleged in this case, to appear more attractive to investors, is a deliberate attempt at sabotaging fair market trading,” Assistant Director-in-Charge for the FBI’s New York field office William Sweeney Jr. said in a statement. Sweeney and acting U.S. Attorney Bridget Rohde read the indictments. “Manipulation, at its core, is a true act of deception, especially when the elderly are targeted. This scheme involved an incredible amount of money, more than $147 million. That’s no small change for even the savviest investor. As evidenced by our arrests today, we take these matters seriously, and will continue to pursue those who make victims out of unwitting participants in these schemes.”

Managers of My Street Research — a Melville based investment firm — Erik Matz, 44, of Mount Sinai and Ronald Hardy, 42, of Port Jefferson were among those indicted. They also engaged in a scheme to launder about $14.7 million in proceeds obtained as a result of the scheme, according to Rohde’s office. The government restrained Matz’s Mount Sinai home and seized bank accounts containing alleged criminally obtained money. The attorney representing Matz and Hardy did not respond to a request for comment. A phone message requesting comment from My Street Research was not returned.

Dennis Verderosa, 67, and Emin L. Cohen, 33, both of Coram, and McArthur Jean, 34, of Dix Hills were among those listed as “cold-callers” for the operation.

Cohen’s and Verderosa’s attorneys each declined to comment via email. Jean’s attorney did not respond to a request for comment.

Robert Gilbert, 51, of Cold Spring Harbor and owner of the investment firm Accredited Investor Preview was also among the 14 people indicted.

“We’re still studying the indictment, but Mr. Gilbert is mentioned substantively in only one paragraph,” Gilbert’s attorney Ira Sorkin said in a phone interview. “He has not been incarcerated, and there is no claim any of his assets have been frozen as is the case with some of the others. Until we have a chance to read further into the indictment we will have no further comment.”

The five companies whose stocks were pushed by the “pump-and-dump” scheme were National Waste Management Holdings, Inc., CES Synergies, Inc., Grilled Cheese Truck,  Hydrocarb Energy Corporation and Intelligent Content Enterprises, Inc.

Editor’s note: Anyone victimized by the alleged scheme can contact the writer of this story via email at [email protected]