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Canadian Lottery Winner Sues Financial Advisor

Mohammed Khan of Vancouver, British Columbia, is suing his former financial advisor Catherine Jones for $2.3 million.

In 2007, Mr. Khan won $3.9 million (Canadian) in the lottery.

The lawsuit alleges that Ms. Jones assured Khan that he would make $50,000 per month from his investment of $3.5 million.

Assuming this is true, and if Mr. Khan had known anything at all about investing, such an assurance alone was plenty to raise some red flags.

Why? Such a return equates to more than 17 percent a year.

There’s no legitimate investment out there that can assure you of such a return on an ongoing basis.

Yes, there are years in which the stock market returns 17 percent or above. There are also years in which it lose 17%, 25%, 30% or more.

And in the long term, such a number is way outside of the historical average of the stock market. This tends to run around 10%, more or less. And it’s probably going to be “less” for the next 20 or 30 years.

17% a year is even further outside of the long-term average of the bond market, which usually returns less than stocks over time.

In other words, it’s way too good to be true.

Any time sometime tells you something that’s too good to be true, you should run for the hills — especially if it has to do with their promise to invest your money. Something is not right, and you don’t want to stay around and find out exactly what.

The lawsuit alleges that Ms. Jones engaged in day trading with Khan’s account, including repeatedly buying and selling the same stock, sometimes several times in a day.

This practice (coincidentally) earned Jones more and more in the way of commissions.

This is known in the financial business as “churning.”

Mr. Khan apparently didn’t even read his financial statements, instead relying on Ms. Jones to tell him how much money he had. The lawsuit alleges that she lied, giving him inflated numbers.

Jones has a couple of significant disciplinary events on her record. However, these seem to have occurred after she was hired by Khan.

There are a few obvious lessons here. First, don’t just entrust your money to whoever makes you the biggest promises. That’s a recipe for certain disaster. Second, check your financial advisor’s disciplinary record. Third, read your own financial statements!

Of course, the big problem here is that many lottery winners like Mr. Khan will never find or follow this advice. And unfortunately, there’s a limit to what can be done about that.

My Friends Who Won the Lottery

Lately I’ve been thinking about some friends who won the lottery quite a few years ago. We’re talking twenty-ish years, give or take.

Yes, I have personal friends who were big lottery winners. At the time they won, they were already friends of some close family members, and through a certain set of circumstances, they became good personal friends of myself and my wife not long after.

They were good enough friends that we went to visit and stayed in their home, and they came to visit and stayed in ours.

For the sake of keeping their identity private, I’m being vague about some of their details. I will say, though, that in today’s dollars (that is, adjusted for inflation) their win was in the $35 to $40 million range. And that’s after taxes.

At least, that’s what they had when the husband talked to me about their finances. At that time, their net worth had likely increased through their business dealings after winning the lottery.

Back then, I had nothing to do with lotteries at all. And while it may sound odd to some to say it, I was more interested in what they were doing with their wealth than in the wealth itself.

Because they were doing some really good things. They had become heavily involved in philanthropy, and that interested me. It was a topic that I was pretty heavily into at the time.

In addition to the philanthropy, and their business interests — which were quite considerable — they had purchased a big home for themselves. My wife and I went and visited them a time or two, and stayed for several days when we did. We were given not just a bedroom, but a suite of rooms to stay in. The whole thing was fun, of course. But it wasn’t just staying in such a big place. The fun was largely because our friends were genuinely really good people

We didn’t spend all of our time in the big house. We went out and did things with our friends. But oddly, other than the fact that it involved eating, I don’t really remember that much about what we did.

The most vivid memory I have is of my friend showing me some of his investing online. This was back in the early days of online trading, but my friend was very up-to-date.

I remember staring at his portfolio — which accounting for inflation would be worth about $5 million today — and feeling uncomfortable. A little bit of the discomfort was due simply to looking at the finances of someone who had a whole lot more money than I did. But most of the discomfort came from a thought that I have never forgotten:

“If I had that much money to invest, I think I would invest it differently.”

Or, to put it another way: His investing style worried me.

I didn’t tell him this. Maybe I should have. But I know in my heart that even if I had, it wouldn’t have made any difference. He would not have listened. Because I simply didn’t have the authority to command his attention on the issue.

He was the big businessman, and I wasn’t. And in fact, by the time of this incident he had been in business for several years, and his business interests were still doing really well.

Two or three years later we learned that our friends were going through some difficulties. There was a lawsuit involved.

Now our friends had the great majority of their money in a single business. Probably about everything except for the mansion and the investment portfolio I’d looked at was in their one business. So the business was worth maybe $30 to $35 million in today’s dollars.

And this business had previously been doing fine, but now things had turned sour. There was at least one lawsuit involved. And it had nothing to with anything that was my friends’ fault.

In fact, they were the plaintiffs, against a business partner.

The lawsuit dragged on for several years, with the other side (who had even more cash than my friends did) using every trick they could pull to make it last forever.

Somewhere along the way, our friends pretty much ran out of cash, and he took a blue-collar job to help make ends meet.

When it was finally over, our friends had won. But it wasn’t much of a victory. The legal fees had piled up, the company itself was pretty much worthless, and our friends were — if not entirely broke — at least fairly close.

It goes without saying that they lost the mansion.

And no, they didn’t end up quite penniless. But they certainly moved from being mega-wealthy to being those-folks-down-the-street-who-used-to-be-really-rich.

So why am I sharing all this? I don’t know. Just because I’ve been thinking about it a lot lately.

It’s a personal experience — at least, as personal as it might be given that I wasn’t the one who lost the fortune — that says once again that wealth, and especially wealth achieved suddenly, is not necessarily a lifelong condition.

Are there things our friends could’ve done to avoid going broke? Yes. In this case, they might have been helped by better planning, avoiding putting so many of their eggs in one basket, and above all — not thinking they were immune from losing what they had.

Major Sports Star Earned $200 Million, Has (Almost) Nothing Left

Allen-Iverson

Allen Iverson brought in — and lost — around $200 milllion. At age 55, the unusually fortunate ball player will get a second chance. Wow.

4 years after he played his last NBA game, Allen Iverson’s basketball career is officially over. He announced his official retirement last fall.

While it lasted, “AI” was one of the highest scoring basketball players in NBA history.

Over the course of 15 years, Allen Iverson brought in around $200 million. He earned about $155 million in salary alone, plus tens of millions more through things like product endorsement contracts.

He is reportedly about $1 million in debt, with no income adequate to pay those debts.

In other words, if you have less than $1 million in personal debt, then you’re in better overall shape financially than Allen Iverson… for the short term, at least.

Iverson’s slide into bankruptcy has been marked by the loss of multiple luxurious mansions.

It turns out that Iverson isn’t completely broke, however.

Back in the glory days, Iverson signed an endorsement contract with shoe manufacturer Reebok. One of the provisions of that contract was a rainy-day trust fund that Iverson will inherit when he reaches 55 years of age.

Iverson is 38 now, which means he can’t touch a penny of it for another 17 years. Although the value of that trust fund is $30 million, Iverson will probably have to split it with his ex-wife. Still, he should be left at age 55 with $15 million.

So Iverson, it turns out, is an extremely fortunate man. One gets the idea that the folks at Reebok had a streak of smart and benevolent in them, and that if things had been left up to Iverson himself, he would’ve ended up living in a trailer.

Of course, if his past history is any indication, he still may. Some people lose their fortunes in spite of exercising apparent good sense — hiring financial advisors, and so forth. In Iverson’s case, he was famous for having an entourage of about 50 people, showering them with various gifts, and in general behaving recklessly, financially and otherwise.

It takes at least some effort to go through an average of a million dollars every month for 15 years. But, as the case of Mr. Iverson shows, it can certainly be done. (Of course, Iverson’s example pales next to that of Prince Jefri Bolkiah, mentioned elsewhere on this site, who reportedly went through about 75 times as much money in only 2/3rds the time.)

In any event, when the year 2030 rolls around (assuming he’s still living then) Allen Iverson will get a second chance.

What’s he going to do for the next 16 to 17 years? Hard to say.

Quote: “I made a lot of mistakes, a lot of things I’m not proud of. But it’s only for other people to learn from.”

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Congratulations to…

raining-moneyCongratulations To:

  • John Lee, Kirkwood, Missouri: $2 million, Powerball.
  • Arturo Hernandez, Des Moines, Iowa: $1 million, Lifetime Riches, after being mistakenly sold the wrong tickets by the convenience store clerk.
  • Kathryn Jones, Hamilton, Ontario: $50 million Canadian, Lotto Max. The prize was awarded even though Jones lost the winning ticket, after the lottery board’s investigation determined she was the person who bought it.
  • Dennis Nash, Winnipeg, Manitoba: $8.1 million Canadian, Lotto.
  • Audel Acevedo, Mesa, Arizona: $1 million, Mega Millions.

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The Story of Han and Li

[Note: Most lottery winners either continue to work, or at least find new work. For most of us, this is a good idea. But the implications of the following parable go beyond simply work. And it’s not just for lottery winners. It’s applicable to life in general.]

chinese-painting-1600sIn a fishing village in ancient China there lived two boys. One was named Han, and the other was called Li. And the two boys used to play together along the shore of the great river.

Now the day came when Han’s father called him and said, “My son, the time has come for you to seek your way in the world. You must go and find a master, who will teach you how to live.” And Li’s father said the same thing to him.

Now it happened that two new masters had recently arrived in the village. So Han approached the first master and asked him, “If I become your student, what will you teach me?”

“I will teach you the way of the salmon, who swims upstream in the summer,” replied the master. I will teach you to climb the mountain in the hot sun. I will teach you to run until you are thirsty. And I will teach you to lift boulders until you are tired.”

Then Han went to the second master and asked him, “If I become your student, what will you teach me?”

“I will teach you the way of the seagull,” replied the second master. “I will teach you to soar upon life, just as the seagull spreads its wings and soars effortlessly on the breeze. I will teach you to live off of the bounty of the land. I will teach you to float, just as the seagull floats on the water. And I will teach you to be free — just as the seagull goes wherever he pleases, whenever he pleases, and is beholden to no man.”

“I should very much like to learn this way of the seagull,” thought Han. And so he stayed with the second master.

In his turn, Li also approached the two masters, just as Han had done. And when he had spoken with both, he thought to himself, “I should very much like to learn this way of the seagull, as my friend Han is doing. However, I have also wished my entire life that I might be able to climb the mountain, and at least once see its magnificent view. I think I shall go and stay with the first master, at least until he has taught me to climb the mountain. Then I shall return and learn the way of the seagull with my friend Han.”

And so Li went and lived with the first master. He began to learn the way of the salmon, who swims upstream in the summer. This path demanded effort from him every day. It was often challenging, but it was not beyond his ability. It simply took effort. As time went by, he learned the skills needed to climb the mountain. And when after some months of training he reached its peak, he found the experience and the view to be so exhilarating that he decided to stay and see whether there might be some reward also in learning to run until he was thirsty.

In the end, he forgot all about learning the way of the seagull at all.

Han stayed with the second master, and he learned the way of the seagull. He learned the silence of the ocean on a quiet day, and the roar of the ocean in the storm. He learned what foods there were in nature, and he roamed through the wilderness with his master, going where the master pleased. He enjoyed the bounty that life had to offer him. He learned to live without concern, without obligation to others, and almost without effort, because he understood all the things that grew in the forest, and which of them could be eaten, and how.

After some time, the two boys — who were now young men — were released by their masters.

Li went and lived in a village. He built for himself a house made of stone — for he had grown strong lifting boulders in the wilderness, and it was now not a difficult or unusual thing for him to carry rocks and use them to make buildings. He also began to build such houses for others, and was happy to see the things he had made. These others also paid Li, and he became prosperous.

When invaders came, he repelled them, for not only was he strong — he was also swift, because his master had taught him how to run until he was thirsty. And like the salmon, he had learned to follow a purpose to its end, and to expend effort to achieve a goal.

And so Li gathered his relatives and friends around him. He lived a long and mostly happy life. When he died many years later, he left children and grandchildren, and was sorely missed by those who knew him. And he had taught his children the way of the salmon as well.

Han went and lived in the forest. There he was fortunate enough to find a valley by the river that was overflowing with the riches of nature. There was fruit of all kinds, and he gathered it — almost without effort. Monkeys and golden pheasants lived in the valley, and some of them became his friends. He also lay beside the river with his fishing line in the water, and whenever a fish would attach itself to the line, he would pull it in, cook the fish, and toss the bones on the ground.

And so Han made his home there beside the river, and sheltered under an overhanging rock. When invaders came through the land, there was no need for Han to fight them, because he lived in the wilderness, and did not have anything that interested them anyway. Han grew soft and fat on the bounty of the earth, until he found it difficult to walk up the steep slope that led out of the valley. But he cared little to leave his valley in any event, because it provided for all of his needs.

Unfortunately, on a dark and moonless night just three years after he had left his master, Han was swarmed and eaten by mice. It was a sad way to go, but being badly out of shape from years of no effort, he was unable to fight them off.

And so ended the way of the seagull.

(Moral: An easy, effortless life may not be as great of an idea as it might first sound.)

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Ira Curry Takes Home $120 Million

Ira Curry of Georgia was one of two winners in Tuesday’s $636 million Mega Millions jackpot.

Ira will take home around $120 million. She came forward to claim the prize immediately — on Wednesday, the day after the lottery and the same day she found out she’d won. I would have advised her to take her time, of course.

But she also didn’t appear in a press conference (good move there) and has so far told reporters she wants privacy (also a good move).

By the way, I don’t feel like I’m adding to her public profile here — her name and her photo (which I won’t publish) are all over the news. They’re talking about her as far away as China.

So that particular cat is well out of the bag, and there’s no putting it back in. Those high-profile articles are going to last on the web for years to come. Maybe decades.

The only public statement I’ve seen says that Ira “hasn’t decided” what to do with the winnings. For the present, this is good move #3. She should make no quick commitments. She’s scrubbed her Facebook account — good move #4 — but quite a bit of information did leak out before she did, including some photos. Which of course is not as good.

Like other big winners, Ira needs to let the story die.

Now come the various challenges of life after the win. Fortunately, Ira’s own children are reportedly grown, which is probably a good thing. But she does have grandchildren in the mix. I hope she and her husband will be wise in how they deal with the family challenges, and especially the grandkids growing up in the shadow of $120 million. From the very little I’ve seen, Ira and her husband look like fairly astute individuals. That does give cause for optimism.

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David Lee Edwards Is Dead

“I want this money to last, for me, for my future wife, for my daughter and future generations.” — David Lee Edwards
David Lee Edwards married girlfriend Shawna shortly after winning the lottery. Their bright future quickly turned dark.

David Lee Edwards married girlfriend Shawna shortly after winning 1/4th of the Powerball jackpot. Their bright future quickly turned dark.

In August of 2001, David Lee Edwards won one fourth of the Powerball jackpot. After taxes, his share came to $27.1 million in cold, hard cash.

In less than 5 years, David and his new wife Shawna were living in a storage unit, after coming to the end of the money and losing their $1.5 million mansion.

Shawna left David not long after the money ran out. David then spent the last 7 years or so broke before dying alone in a hospice, reportedly thousands of dollars in debt. He was only 58.

David leaves behind not a single penny for his daughter Tiffani. She now works as a clerk at an amusement park.

There are many lessons that could be learned from David Lee Edwards’ tale. For one thing, a prudent couple could easily be set for the rest of their lives on less than one tenth of the resources Edwards and his wife had.

The frugal and well-advised could probably even do it on a twentieth the amount.

And that’s in reasonable comfort, for the rest of two people’s lives, without ever working again, and even having something left to leave to the kids.

But with David and Shawna, it was all gone in less than five years.

“If he followed my advice, he’d be pulling in about $85,000 a month for the rest of his life.” — James Gibbs, former financial advisor to David Lee Edwards

Another lesson is: Exercise some prudence and humility. If you’re a multimillionaire, don’t try to live like a multibillionaire. If you do, don’t be surprised when total poverty is the result.

Also, if you have any interest in drugs, then you’d better get yourself seriously sorted out, or else find a way to restrict yourself from blowing through your fortune. The same may be true if you’re inexperienced in managing money.

And you’d better find ways to restrict those you hire from fleecing you, as well.

Another lesson — and this is a big one — Good intentions aren’t enough.

David wanted to be responsible. He wanted the money to last. He wanted to leave a legacy for his daughter and future grandchildren. He even said so. In fact, it was one of the first things out of his mouth.

But the world doesn’t give a fig about your good intentions. It only cares about what you do.

And David Lee Edwards didn’t do the things that go along with either living a long and happy life, or holding on to your fortune.

Here’s one of the cold, hard truths of life: Winning the lottery is just money. It doesn’t change your nature. If you were a screw-up before you won the lottery, then winning the lottery isn’t going to automatically make you a success.

The good news it that it will give you the opportunity to have enough space and resources to reform yourself. But unless you actually put yourself onto that path, and keep on it just as seriously as if your life depended on it — because it well may — you’re only going to keep being a screw-up.

Only now, you’ll be a screw-up with money. Enough money to fail spectacularly. And the entire world is going to know you’re a screw-up.

And in the end, the money will do you no more good than it did David Lee Edwards. Dying penniless and alone at age 58? I don’t call that a benefit.

Finally, what’s the good of hiring a financial advisor if you’re not going to follow his advice? David Edwards seems to have enjoyed joking about how upset his spending decisions were making his financial advisor.

The value of a financial advisor is not in showing him off as some sort of status symbol. It’s in getting good advice from him, and then actually FOLLOWING good advice, so that you don’t end up as Edwards did.

If he doesn’t give good advice, then get an advisor who does. If he does give good advice, then follow it.

What David Lee Edwards seems to have missed at the time — when he was making fun of his upset financial advisor — is that the joke wasn’t on his advisor — it was on him.

The advisor wasn’t upset over David’s unwise use of the advisor’s money. The advisor was upset over David’s unwise use of David’s money.

And the advisor was only in danger of losing a client — which he did.

Edwards was in danger of losing his fortune and his life. Which he did.

More information about David Lee Edwards’ tragic life and death can be found here, and here.

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Congratulations To…

raining-moneyCongratulations To:

  • Kevin Carlson, Kansas City, Missouri: $71.5 million, Powerball.
  • Edward Prakapas and Daniel McCarthy, Boston, Massachusetts, $1.4 million after taxes, Powerball.
  • Amy Gourlay, Niles, Michigan: $1 million, Mega Millions.
  • Kenneth and Colleen Beard of Arkansas: $1 million, MIllionaire Madness.
  • Nathan Wilson, Karlene Zephirin, Keith Robinson, Isai Cortez and Marvin Rosales-Martinez, of New York — each winners of $1 million in the New York lottery. Rosales-Martinez is a landscaper who found his lottery ticket outdoors, blowing in the breeze.
  • Patricia Edwards, Troy, Ohio: $1 million, Mega Millions.
  • Ramon Mendez, Virginia: $2 million, Powerball.
  • Ira Curry, Stone Mountain, Georgia: $120 million after taxes, Mega Millions.
  • Kathryn Jones, Hamilton, Ontario: $46 million US, Ontario Lottery.
  • Karina Ahumada, Phoenix, Arizona: $1 million, Powerball.
  • David & Erica Harrig, Gretna, Nebraksa: $61 million, Powerball.

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