BHI Ponzi: Shapiro on Craig Warriner – SA’s ‘Bernie Madoff’

After 15 years of running a Ponzi scheme, financial advisor Craig Warriner confessed, handed himself over, pleaded guilty to any and all charges and is seeking the safety of a single cell in prison. Not much is known about the low-profile financial advisor whose registered office, ironically, is listed by Dun & Bradstreet as 4 Gremlin Road in Sandton. An old boy of the prestigious Johannesburg school St Stithians, Warriner, appears to be the South African equivalent of Bernie Madoff. He appears to have lost billions of clients’ investments through a trust named after Berkshire Hathaway. David Shapiro unpacks the story, highlighting red flags that will help others avoid falling into the clutches of fraudsters like this. He spoke to Alec Hogg of BizNews.

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Relevant timestamps from the interview

  • 00:05 – Introductions
  • 00:53 – David Shapiro on if he has met Craig Warriner
  • 02:26 – Similarities to Bernie Madoff
  • 04:31 – The global financial crisis of 2008
  • 07:28 – Warning bells 
  • 09:42 – Bigger worries than just losing your money
  • 11:52 – How to see the warning signs
  • 15:47 – Where is my money
  • 17:17 – How was he able to get away with it for 15 years
  • 18:59 – Prepare for a long investigation
  • 20:12 – Conclusion

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Edited transcript of the interview by Alec Hogg with David Shapiro

Alec Hogg: My really good friend, David Shapiro, is so busy nowadays I hardly get time to nail him down, but my goodness, we’ve got the South African version of Bernie Madoff that has been uncovered. The guy’s gone to jail, he’s asked for a separate cell, he’s scared one of his thousands, it appears, of investors is going to get him bumped off before he can live for very much longer. We’re going to uncover this whole story of a fellow called Craig Warriner in a moment. David, good to be talking with you. Bernie Madoff came to mind immediately when I saw this story. But have you ever heard of, have you ever met Craig Warriner before? Do you know of him?

David Shapiro: No, not at all. But we can’t establish what the size of this fund was, although there have been hints that it’s fairly large and substantial, you know, in the billions, but there’s no proof of this. The problem is with these kinds of structures, you can’t really get into it and establish the size of the so-called fraud, you know, how much, what was the quantity of assets that he was holding on behalf of clients. So, you know, that makes it very difficult, even in the charge sheet or the, you can’t find it; there is very limited detail.

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Alec Hogg: At this stage, but a friend of mine’s brother has had 10 million Rand gone, that’s just, just a kind of by the bar. We know that Kaywood attorneys who are involved in this have also put their own money in. You can be sure that their clients would have been advised similarly. He’s been at it since 2008. So although he might have been low profile, he’s not on LinkedIn. He’s not on anywhere. I couldn’t find him anywhere. He’s not a BizNews tribe member, which, to me, says, come on, you’re in the financial services sector, you’ve got to be consuming our content. And his company is called BHI Investments, which apparently, I’m told by my friend, stands for Berkshire Hathaway Investments.

David Shapiro: You’re kidding. Okay, that’s very interesting. Alec, what’s interesting about these characters or these con artists, even if you look at Madoff, a pillar of society, right schools, clean-shaven, dresses nicely, probably has a nice family and kids, I don’t know anything about it. There you are. You see, and the problem is that by using those credentials and CV, he attracts people. How could this happen to us? He has a very nice boy; I know his father, I know his mother, a member of the club, and so on. And I think that’s the danger. Alec, this is not unusual. This has happened repetitively. And the genesis of it or the foundation of it, what happens? You’re a financial person, you make promises, you go sell yourself, it goes wrong. So what do you do? Let me just go into the trust account, I’ll take a little bit, I’ll make it up and put it back. And it starts to go out of control. That’s what happened to Madoff. And then eventually you can’t control it anymore, and the whole thing breaks apart. How many lawyers have gone to jail or been struck off the list or accountants as well? For tapping into trust funds, simply because they were short of money, a little bit here, need to finance my motor car, I’ll pay it back, I’ll pay it back later. And I don’t think these are premeditated. This is not a Tan and Bone, which was premeditated, where he was creating false invoices or some of the other frauds, or even like a Steinhoff where the whole thing was premeditated. This, I think… I don’t think it started off like this. These go wrong. So I think that’s the basis of it. It’s nothing new.

Alec Hogg: That he’s been added, he’s been punting since 2008. So clearly, take us back to 2008, Dave. That was the global financial crisis, and lots of people lost a lot of money there.

David Shapiro: Yeah, the market crashed overnight. Well, it started to fall in late 2007 and picked up, sorry, 2008 or thereabouts. My dates are slightly out of sync on that, but it started and then collapsed with the liquidation of Lehman Brothers. So that was about 15 years ago, 2008. So the fact that he’s been at it for so long, Alec, he couldn’t do it alone. That’s the danger. You could never manipulate accounts or create false accounts like this on your own. You need to have a whole lot of people around you who are helping to create these fraudulent statements that go out to clients. The danger comes when somebody wants to withdraw something or do something; then you’ve got to hustle out and find the money. You’ve got to hustle around. So you probably go to more people to either take from other accounts or alternatively falsify the records all along the way. Eventually, it just gets out of hand. But you’ve got to ask a lot of questions, not only about the people who worked with him but also about the trust. What trust? Was it audited? Who were the watchdogs? And of course, it has to be, of course.

Alec Hogg: Does it have to be?

David Shapiro: Unless it’s just a nominee company that’s made up as a club, but you can’t load accounts like that anymore, Alec. We could do it in the past. I’m talking about the ’70s and ’80s when Alec Hogg would phone me up, I’m on the stock exchange floor, and Alec would say, “Buy me 100 of this.” I’d say, “Hold on, where do you live?” And I’d fill out something, and I’d put it in my nominee company. We used to get away with it. You can’t do that anymore. The requirements of the financial, you know, the financial securities board and all the regulators are very onerous. You can’t do those kinds of things anymore. So there are a huge number of questions. I don’t think he’s the only person that’s going to fall once we start unraveling this. There are going to be a lot of people at fault.

Alec Hogg: David, just unpack this for me. My friend tells me that Warriner, Craig Warriner, the chap who gave himself up, went to jail. He’s going to represent himself. He says he doesn’t want bail. He wants a single cell. He’s basically decided that he’s guilty and he’s going to stay there probably for the rest of his life. But he is, Craig Warriner was a supposedly conservative investor. So he didn’t tell his clients that he was shooting the lights out. It was always every year a slight increase, a reasonable increase, 8 to 10%, not 20 to 30%. Is that a warning bell?

David Shapiro: That’s difficult to see. That’s the con artist. That’s making you believe that everything’s right. In Madoff’s case, it was the other way around. He was giving a regular 10% where you couldn’t get anywhere close to that, and everybody flocked to him. So that was the difference. People wanted Madoff to look after their money. I think in this case, he was in such trouble that’s all he could afford to show. So I think this is going to take years to unravel. Absolutely years. What happened with Madoff, and this is the danger, people who made money from Madoff had to give it back. In other words, the folks who gave money and got the returns paid out to them eventually were called on to give back earnings that weren’t real. A lot of people had to give back significant amounts. That’s the danger in this case. If there were some winners who pulled out along the way, they might have to give back their earnings. That was the classic case with Madoff because it wasn’t real. These were book entries made to give you a profit. “I need my money out tomorrow. Don’t worry; we’ll get it.” Sign a check, and you get your money out. So you’re taking money from the Ponzi scheme. You would. Yes.

Alec Hogg: So Paul has been paid; there are Pauls out there who’ve been paid by this BHI. I mean, what a crazy thing to call it Berkshire Hathaway. But surely that’s got to ring all kinds of bells for you. So essentially, some people have been given money out because they might’ve needed it for something. But actually, those are the proceeds of crime now because it’s somebody else’s investment…Wow that’s a worry, David. That is a bigger worry than just losing your money, I guess. You’ve got to kick in more.

David Shapiro: Right. I think so. If you’ve been with him and invested with him, made money with him since that period from 2008, whenever it started, then you’re going to be investigated. People are going to look, and that’s why you’ve got to go all the way back 15 odd years of entries and see the people that scored and those that didn’t score and so on. This is not going to be concluded overnight. It’s going to take a long time and require an enormous amount of effort, forensic auditors, and so on. But Alec, there’s a lot of… it worries me. I think generally people are trusting. We’re all trusting. We want to believe these people are honest. And that’s the tragedy of it. But you do rely heavily on the auditors on people like that who are there on your behalf and should be looking out for you. It’s not difficult, it’s not rocket science to reconcile clients with the markets and do investigations. A lot of questions will come out about the professionals involved with him.

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Alec Hogg: He too, his cable attorneys have also put money in there. So if a professional like an attorney, and presumably there are some accountants as well, have trusted this guy, then what due diligence might they have done? Or could they have found out that he was a crook? Is it possible? What are the warning signs?

David Shapiro: I think the warning signs are the statements that you receive. I think that’s where it starts. You’ve got to ask, “Where are my shares?” What worries me is the structure. This is at the back of my mind. If it was a trust, who owns the shares? Was it the trust, and therefore you’re just a shareholder? Or were those your shares? In other words… We’re holding it on your behalf. These are yours, ring-fenced, pigeon-holed. And that’s when you deal with us, you deal with any professional, investing, Coronation, whatever it is, you’ve got access to what you own. You know that this has been held on your behalf. It’s the one thing that started in 1987 was a very important regulation that came out. Your client’s funds are ring-fenced. You cannot access it. And that’s important to know. I want to see my shares, or I want to know where my shares are. I want to know where my money is. And we don’t ask those questions. I think this is perhaps the naivety of the people that they prey on. I think from KWOOD, I don’t want to make any libelous comments or anything that’s going to get me into trouble, but they should have been asking questions. This is the problem where they also hoodwinked, where they also conned by a smooth-talking person whom they believe was acting on their behalf. This is not unusual. I know a number of these structures around. I don’t say anything, that’s the clients. I don’t deal with them, but these are the clients. This is where the, this is the client’s downfall. If I see something like Mauritius, or I see a name like that, I just run away. I just, I go. Okay, I’m not there. I want to know. I want to know it’s here held in a safe deposit or whatever it is. And I always worry about the kind of structures. We always just a little too smart. And I think just get people to ask questions. It’s your money. 10 million is a lot of money. You never recover. Alec, you never ever recover. And it’s just so sad.

Alec Hogg: That’s one person. How?

David Shapiro: You remember Deal Stream. You remember Russell Lee. I mean, it was obvious. If anybody went into his office, you knew this was chaos. You knew chaos reigned. I don’t know where the shares were, etc., but how many people were sucked in because of easy money, this is a lovely trading platform, etc. There was absolutely no structure behind it whatsoever. I don’t think it’s ever been sorted out. And the people who lost money never ever recovered and big names. You know, so there’s conservative, and there’s conservative. You know, you can give conservative returns, but you want people who run their books conservatively. It’s important. I know, I just hope people listen to this, and no matter who you deal with, no matter who you deal with, just be a little wary. Just investigate, ask questions. There’s nothing wrong with that.

Alec Hogg: So, if I understand correctly, David, if somebody asked you for a red flag when it comes to investing, the first thing is, “Where is my money?” If it’s in some nebulous trust, which is clearly the case here, B-H-I trust. And if it’s called Berkshire Hathaway, just, you know, a double, double wink. But if it’s some nebulous trust, then you know that you are very much at risk.

David Shapiro: Yes.

Alec Hogg: Because the trustees, of which there are two in this case, Craig Warriner is one of them, have access to those funds and they can play with those funds any way they want to. And did.

David Shapiro: Absolutely, right. That’s very important. “Where are my shares? Are they in my own name?” If they’re in a nominee name, where are they held? Can I access; you know, have I got proof of these kinds of things? I deal with UBS in Zurich, for example. They will tell you these shares are in your name. Some of the Swiss shares are in a nominee name, but they market it like that so you know. You know those kinds of things, but if ever you need to sell or you have access to it. So you’ve got to ask them. We deal with a number of providers. The shares are held in State Street, you know, the funds are held here. But we constantly ask them for reconciliations, and you constantly investigate. You have to ask those questions. What you have identified now is number one. “Where’s my money? Is it in my name?” or was it in some, as you say, nebulous trust or nebulous nominee?

Alec Hogg: So, this guy has been trying to earn back the money for the trust since 2008, that’s what we understand so far. He isn’t even asking for a lawyer to represent him. He says he’s guilty. He’s done it. Why would he do that, David? Why would he be able to get away with it for 15 years? And then, when the game is up, he just throws his hands in the air and says, “Just do with me what you will.”

David Shapiro: He hasn’t slept for 15 years. He hasn’t had a night’s sleep in 15 years. That’s the problem. He wakes up in the morning, even if he’s playing golf or taking his kids out, he’s constantly thinking about what’s going to happen. And eventually, you just say, “This is too much.” So he wants to be held in a cell, whatever it is, so he can sleep without having to concern about it. It’s all out now. And I think that’s the issue. You can’t, you’re manipulating all the time. “What am I gonna do? So once they’re money out, where am I gonna find it?” And you’re thinking eventually, you’re lying so much, you don’t know the difference between truth and lies anymore. You can’t reconcile that anymore. They always say an honest man doesn’t need a good memory. That’s an old saying, which is, you know. So It’s a problem but I think if anything comes out of this talk that we’re having now, and if you are reaching your people, just ask those kind of questions. Just, “Where are my shares? Who’s holding them? Are they in my name?” And you need proof that those are yours.

Alec Hogg: Too trusting. He actually, incidentally, went to the Katlehong Magistrates Court. Presumably, not too many of his customers, being a St. Stithian’s boy, would be at the Katlehong Magistrates Court. But you say something like this could go on for a long time.

David Shapiro: Yeah, The investigation’s going to go on for a long time. But I think simply that you have to now go all the way back and reconcile this. But, and I think that those people who have made money from him and that, I think are gonna start having sleepless nights. You know, we don’t know the extent. Maybe it’s not as bad as it is, but probably is that it’s got to this kind of point, you know, 15 years later he hasn’t been able to reconcile it. So what he’s been doing with the money. I think also sometimes the people that deal with him have to be questioned as well. We’ve got to do our own regulations. For example, if he was dealing with any financial institution, that trust would have had to be registered. You start to ask questions. I find that also a big worry as well. There are a lot of people out there who want to make a quick buck and who want to do the dealing on these bar. They’ve also got to ask questions about their clients. Know your client. It’s just not an acronym. It’s a genuine thing. You’ve got to know who you’re dealing with.

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