You may be the victim of investment fraud, you may work for a less than ethical financial services company, or you may be an advisor who just took on a new client who has been abused by an advisor, company, or both. Please use the Report Abuse function on the top navigation of this website to report your experience or the experience of your client. You can use your real name or a pseudonym, that’s up to you. We prefer real names so we can interview you, then decide what name to use.
The Fraud College is a Utah organization that educates members of the LDS church about affinity fraud and other types of investment scams. Affinity fraud occurs when a scam is sold to a group of people who have a common interest or belong to the same organization (LDS church). For example, Bernie Madoff used country clubs and synagogues to market his Ponzi scheme.
The close-knit Mormon community has long been a target of scam artists. Scam operators make sure a few high visibility Mormon investors have a positive financial experience. Then they use them as references to increase their credibility. This strategy has been very successful because Mormons trust other Mormons, in particular high visibility Mormons.
Don’t buy an investment product just because someone you know or respect has also bought the product. You still have to do your homework!
This type of action continues to show all of us that the responsibility of qualifying a competent and trusted Advisor to work with still resides with the individual. The investor needs to educate themselves on how to decide on what type of advisor to work with. Investors need to ask questions, review certifications, review investment philosphies and more. Investors need to advocate for themselves today more then ever as demonstrated in this article. These type of criminals believe that if you work for a big brand name that is supposedly trusted, then no one will ever ask questions that may uncover thier fraudulant activities.
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Criminals masquerade as financial advisors to sell illegal investment products. They use personalities, sales skills, and the names of legitimate companies to convince you to buy what they are selling. You can protect yourself from their predatory sales tactics by demanding proof they are licensed to sell investment products or advice.
Step one is to obtain their CRD (Central Registry Depository) number or their IARD (Investment Advisor Registry Depository) number. Step two is to use the number to check their licensing at www.finra.org. To be safe, you should also check them out by contacting your state’s Securities Commissioner. You want to know if they are currently licensed and if they have any investor complaints on their record.
Contact the SEC (www.sec.gov), FINRA, or your state’s Securities Commissioner if the advisor is unable to provide a CRD or IARD number or the number proves to be fake.
Also, don’t assume the products they are selling have been registered with the proper authorities. A lot of criminals use forged prospectuses to convince people to buy illegal investments. Again, check the products with FINRA and your state’s Securities Commissioner to make sure they have been registered for sale in your location.
A recent visitor to the Watchdog blog site reported a fraudulent way an investment advisory firm ripped her off for decades simply because she was too trusting.
Cathy and her former husband used the services of this firm for 25 years and she continued to use them for 12 years after her divorce. After all this time, Cathy decided to determine how much she was paying for financial advice and services.
She found she was paying 1% of her assets as an annual fee which is an appropriate way to compensate financial advisors for their knowledge and services. When she dug a little deeper she found she was also being charged $938 per quarter that was described as a "Base Fee" on her statement.
When Cathy asked for a description of the services she received for this fee she was told the fee was for all of the "discussions" the advisor had participated in. According to Cathy there were no dicussions.
The company offered a $1,250 refund and said it would discontinue charging the base fee in the future. What a crock. In 25 years Cathy and her ex-husband had paid more than $100,000 of excess fees.
There are three issues at play. Cathy should never have waited this long to question the fees she was paying and the services she received for the fees. Second, there is no question, some advisory firms take advantage of clients for money – even clients who have trusted them for years. Third, how do you trust a company with your assets when they charge excess fees for no reason other than they can get away with it.
Cathy is seeking an attorney to try to get some of her money back, but that will be a long arduous process with no guarantee of success. The firm will argue she should have reviewed her statements sooner. Cathy had better fire the firm and quick.
Currently, the SEC is proposing a rule that would require investment advisers to provide evidence to an independent accountant proving they actually possess their clients’ assets they say they have.The rule aims to better protect the invested dollars of those who use investment advisers.
Regulators are concerned that it is too easy to cover up misappropriation of assets by sending clients phony investment statements regarding their accounts giving investors the false impression their money is in fact invested. This is typically what happens in ponzi schemes and investment frauds, including the Bernie Madoff scam.
The SEC is considering several proposals. One suggestion would be to subject advisers to an annual surprise exam by an independent accountant to verify the existence of client assets. A second proposal would require advisers annually show a federally regulated accounting firm they have the proper controls in place to safeguard client assets which would be in addition to the surprise examination.
There is an early detection problem with both of these proposals. Namely there is a time-lag between when misappropriation of assets could begin and when the surprise exam or annual audit actually takes place. This is a serious risk for anyone considering investing a large amount of their net worth.
Instead, investors may want to consider the following to protect themselves: Make sure your adviser uses an independent custodian. Do not invest money with an investment adviser who performs both the investment and asset custody function. The line separating the custodian and adviser should not be blurred. The custodian of the assets should be completely independent of the investment adviser to reduce the potential for the kind of fraud we witnessed with the Madoff scandal. In other words, the investor should be making checks payable to or depositing money in a financial institution completely separate from the investment adviser’s firm.
Summarized in a recent FA News (May 08, 2009) article, FINRA: Broker Deceived 64-Year-Old Nun, a financial adviser affiliated with a well-recognized financial institution swindled a 64-year-old nun, an elderly couple, and a retired widow out of huge sums of money. Besides being a truly despicable piece, it goes to show you that just because (or especially because) an adviser is affiliated with a household name, investors should not assume that he will be honest and act with ethical integrity.
This disgraceful act was perpetrated at a large, well-known financial institution. This type of behavior generates many serious questions: Where were the checks and balances? Where were the internal controls to guard against such an act? How can investors protect themselves from such deceptive behavior? Why isn’t the offending broker in jail?
Rep. Manzullo gets the chance to ask the same question that all taxpayers are asking as of yesterday when we heard of the AIG bonuses that were going to be paid to the ‘leadership’ teams that ran the company into the ground last year!!! Priceless! You almost feel sorry for the Bailout Czar, except we are all too angry that our money is being wasted!
A recent Paladin Registry (www.paladinregistry.com) study showed Ponzi investment scams have a common characteristic:? the people behind Ponzi?scams develop personal relationships with investors to create trust, gain control of assets, and generate referrals to other victims for their illegal products.
Jack Waymire, co-founder of Paladin Registry and author of ?Who?s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor (ISBN 0471476994, John Wiley & Sons, 2003)? said, ?Investors create substantial risk when they select advisors because they like them. That?s because they really don?t know if they hired competent, ethical advisors who put their interests first.?
Daniel Hawke, Director of the SEC?s Philadelphia Regional Office said of the Forte, LLP Ponzi scam, ?Forte engaged in lies and deception at the expense of innocent investors, many of whom considered themselves his friends and close acquaintances. Forte promised outrageous returns and because of his relationships with investors was able to lull them into trusting him with their funds.?
Waymire added, ?The source of investor vulnerability is their belief that people they liked would not take advantage of them for money. What they failed to realize was financial advisors want to be liked for three reasons. First, investors tend to trust people they like. Second, trust makes it easy for unethical advisors to sell bad products. And, third, investors are more tolerant of bad results when they like their advisors.?