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The Investment Scam That Refuses to Die

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When a sales pitch begins with, "I'd like to explain to you why the Iraqi Dinar is not a scam," it's...a scam.

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MINYANVILLE ORIGINAL When a sales pitch begins with, "Hello, my name is John Vallee and I'd like to explain to you why the Iraqi Dinar is not a scam," it's…a scam.



But, would-be currency arbitrageurs can't seem to resist something for nothing. Recently, the Better Business Bureau (once again) alerted consumers that it has been "fielding an increasing number of complaints about investment scams involving purchasing Iraqi Dinars."

There is nothing inherent to the Dinar itself that makes it a "scam." If one happens to be traveling to Iraq, Dinars will be very useful. As an investment, however, the Dinar is really nothing more than a souvenir.

Here's what the Washington State Department of Financial Institutions had to say last month in a bulletin titled "Consumer Alert: Iraqi Dinar Scams":

"What consumers are not told is that the Dinars can be redeemed only in Iraq, as most of the established currency exchange houses and banking institutions cannot convert the Dinar to US dollars. Since no exchange exists for the Iraqi Dinar, dealers can charge whatever they want to sell and buy back the Dinars. These dealers often register with the US Treasury as a Money Services Business (MSB ). An MSB registration is nothing more than a form they file; it does not reflect any experience in trading currency nor entail any qualifications on the part of the dealer, other than basic anti-money laundering requirements. The reason dealers seek this registration is to lend legitimacy to their scam and avoid more stringent regulation."


Hmmm…there must be some sort of misunderstanding. Because TampaDinar.com (of Middletown, Delaware), which bills itself as having been voted "Best Dinar Dealer Online," has a slightly different take on the situation:

"There is minimal risk associated with investing in Iraqi currency and the potential of yield is very high."


The essential pitch that Dinar dealers make to explain their reasoning is summed up on TampaDinar's website:

"There is a high chance that the increase in the exchange rate will coincide with the reduction of military force of the USA present in Iraq. Chances are also high that an appreciation might take place just before the Iraqi elections. Many international organizations such as IMF and WTO are working with Iraqi government to bring forth Iraq's financial system to the rest of the world. It is believed that Iraqi currency will soon be available for trade openly in the international market, which will only lead to greater economic stability to the region. As for how high the evaluation of the Iraq currency would be, some conjecture can be made in this regard. A sudden high growth is quite possible given similar circumstances in the past. This valuation could be anything between the values of 0.01 US Dollars to 1.49 US Dollars. Once this first evaluation is complete chances are there will be more steady progressive growth in the future. This steady growth will prevent an international financial rush. With a steady increment, it will form a limit on the exchange rates in the Iraqi Dinar as many would keep their Dinars expecting further growth. This constant progress in the appreciation of the Dinar will allow for the formation of a free fling market as some investors will sell their Dinars as others hold on to it while some will purchase expecting bigger returns.

An "evaluation of the Iraq currency"? The "formation of a free fling market"? Some explanation is in order. Fortunately, TampaDinar.com has a handy chat feature on its website:

Me: I am wondering about Iraqi Dinars as an investment

Jan: It is a very good investment. Things are progressing rapidly in Iraq, and it is a fact that the Dinar will revalue at some point. It is not an overnight-become-rich investment, but more something for the long term.




Fair enough. Long-term investment, not a get-rich-quick scheme, sounds legit. So, what's this about a revaluation?

Jan: Iraq is in the process of joining the WTO, as soon as that happens, the Dinar will revalue. The key is to hold on to the dinars until that happens.

Me: And what does it mean exactly to revalue? (sorry for all the questions...I'm kind of new to this)

Jan: Banks are not holding the Dinar yet, as it is not yet on the Foreign Exchange. The Revalue means that the value changes....it is highly unlikely it will go down as it is very low at the moment (the exchange rate is 0.0008).


Jan continued:

Jan: Iraq is second only to Saudi Arabia in their oil reserves, the country is getting to be very strong. The US government poured over 200 billion in Iraq to rebuild the country, and big US companies are investing in Iraq.

Jan: Such as BP, GE, Pepsi, AT&T, Exxon Mobil, Royal Dutch Shell.

Jan: Looking at all this, it is unlikely the value of the dinar will go lower...no doubt it can only go up.


Of course. Just look at what Pepsi's (NYSE:PEP) presence in Bangladesh has done for its economy:



A glance at the US dollar's performance might also offer a clue as to what the stateside presence of BP (NYSE:BP), GE (NYSE:GE), AT&T (NYSE:T), and ExxonMobil (NYSE:XOM) has meant for investors long the USD (NYSEARCA:UUP).

Now, Iraqi Dinar discussion boards are absolutely lit up with talk of the revaluation and something Dinar aficionados call the "Triple Zero Lop." This will, as the name suggests, remove three zeros from the Dinar, turning your 25,000 Dinar note into a 25. Here's how Jan explains it:

Jan: Yes, that will happen in January 2013. The value of the dinar will remain the same. They will start printing the new currency. It is overall a good thing as the deletion of the zeros is expected to raise the value of the dinar and will serve the actual purpose of investment (which is to go up).

Me: So like, a 500 dinar note would be worth 5?

Jan: No, the value will remain the same. Iraq only does this for their accounting purposes.

Me: You lost me...

Jan: At the moment, for example, the Iraqi people literally carry a bag of money to buy a loaf of bread. By deleting the zeros, the CBI diminishes the number of dinars they will have to put out.


Let's take a closer look at this math, shall we?

Me: Okay, if I buy 3 million in Dinars today and three zeros get dropped at some point, doesn't that make my 3 million only worth 300,000?

Jan: Not sure what you are asking?

Me: If I buy 3 million in dinars today and three zeros get dropped, isn't my 3 million then worth 300,000?

Silence.

Me: Jan? You still with me?

Jan: Can you please hold for a very brief moment (on phone)...I do apologize....

Five minutes later…

Jan: Thank you very much for your patience...The value will remain the same as the whole monetary system will change....what you were able to buy for 3 million, you will now be able to buy for 300.000.

Me: but my 3 million that I bought previously would only be worth 300,000?

Jan: The value will not go down, it will remain the same.

Me: If this were a stock and I bought shares at 100 dollars after which I was able to buy the same shares for 20 dollars, that would mean that my investment tanked, no?


Apples and oranges, according to Jan.

Jan: Both currencies will remain in circulation during the time of exchange....we are awaiting more news from the CBI, and will notify all our customers once we do have some more information.




Although Fazil Nabi, Iraq's deputy finance minister, told Iraq Business News that "eliminating zeros from Iraq's currency will not increase the value of Iraqi Dinars," government spokesman Ali al-Dabbagh said "removal of the zeros was purely cosmetic," and Iraqi MP Shorsh Haji explained that "the benefit would be more in appearance," Jan reassuringly explained that all Dinar "investors" would "receive a Certificate of Authenticity with every order."

Analyst John Jagerson, the co-founder of PFX Global and Learning Markets and co-author of the book Profiting with Forex, has sounded alarms about Iraqi Dinar scams for years.

His take on TampaDinar's rosy outlook?

"Complete bulls**t (pardon my French)," Jagerson wrote in an email.

"Most of the comments are actually just lies, not even outrageous opinions," he continued. "I am actually very surprised that you got these responses. The bigger dealers won't make those comments -- instead they partner with marketing guys who make the claims and then just advertise with them. The other thing that surprises me is that they would make comments about the IQD as an investment to an individual. That is totally illegal. You have to have a license to make comments like that to an individual person. You can be fined and charged criminally for stuff like that."

And the revaluation?

"His comment about not being on the forex is a nonsensical lie and his explanation of a revaluation/redenomination is weird and makes no sense. He is confusing the two terms (probably intentionally) to make it seem like the IQD will be redenominated and revalued at the same time as if it were two different currencies, which is absurd."

Certainly, Iraq has no interest in allowing the value of its currency go to the moon, no matter how eager Dinar buyers are to see that happen. If 1,000 Dinar is suddenly worth 1,000,000 Dinar, it would cost the country -- which is in the process of rebuilding just about everything within its borders -- that much more to pursue its efforts.

"The Iraqi government wouldn't want any appreciating currency" for this reason, Jagerson tells me.

Finally, if simply purchasing Iraqi Dinars with your disposable income isn't risky enough for you, why not consider holding a bunch of the worthless paper in your retirement account?

TampaDinar.com helpfully suggests opening a self-directed IRA and securing your golden years with the Dinar. The site recommends a company by the name of Entrust.

Jan wouldn't steer me wrong, surely?

A quick search on the TampaDinar recommended IRA manager revealed that a lawsuit filed in April charged Entrust Group Inc. (as well as an outfit called Equity Trust Co.) with "touting the security and safety of self-directed IRAs without performing due diligence on the investment managers with which they do business." According to the Wall Street Journal, Entrust was also accused of converting customers' funds for improper use, conspiracy, fraud, negligence, and elder abuse.

It's a start, to be sure -- John Jagerson says he has been frustrated in the past "that no one will do anything [about Dinar promoters], but it's just not as big as the kinds of financial fraud you see elsewhere."

"In the world of financial crimes and scams there are very, very few of them that are actually prosecuted," he tells me. "Regulators are understaffed, scammers can shut down and restart quickly, and most of the regulators I have worked with barely understand the financial markets anyway."
No positions in stocks mentioned.
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