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Mamas Don’t Let Your Babies Grow Up To Be Compliance Officers

All of the company’s high flown rhetoric about protecting customers, safeguarding their retirement savings, helping them save and build assets for the future, is exposed as so much marketing dross, devoid of substance.

It’s a familiar story; those who’ve read The Vigilant Investor know it well: compliance officers at a brokerage firm identify a broker who is abusing his customers. They bring the problem to the attention of senior management and recommend that the broker be fired. The first question that senior management asks after getting that recommendation is, “What’s his production?”, which, when translated, means “How much money does he make us?” If the answer is a big number, senior management thinks that the rogue broker deserves another chance. (more…)

IW Founder Published in RIABiz

We tried mandatory arbitration during the two decades in which the securities and banking industries nearly destroyed the world economy. Now is the time to scrap it.

When the publisher’s of RIABiz asked me to comment on the various changes the SEC is considering as a result of the Dodd-Frank Financial Reform Act of 2010 (Dodd-Frank) I took the opportunity to point out that one of the proposed changes depends very much on the SEC’s willingness to fully embrace one of the other proposed changes.  Specifically, if the SEC wants to increase the duty that stockbrokers owe their customers, they must also change the current system of forcing investors to arbitrate disputes with brokers.  Investors must have the choice to take their disputes to the county courthouse.

We tried mandatory arbitration during the two decades in which the securities and banking industries nearly destroyed the world economy.  Now is the time to scrap it.  It provides no transparency and is completely useless as a guide to proper stockbroker behavior.  Read the article and tell us what you think.

Fraud By Brokerage Firms on the Rise

Doing business with a big name brokerage firm can actually put an investor at greater risk of fraud to the extent the investor believes that a big name firm would never take advantage of its customers.

Many of the investment scams we cover on this blog involve unregistered entities and unregistered salespeople.  And there is a perception out there that the biggest risk of investment fraud lies in the world of professional scam artists and that only the most gullible among us are really at risk.  But, a recent report from the U.S. Securities and Exchange Commission (SEC) demonstrates what I’ve known since my days as an SEC Enforcement Attorney: registered brokerage firms are hot beds of investment fraud.  According to that report, as covered by Investment News: (more…)

Registered Investment Adviser Steals from Elderly Clients

But Schwab proved no match for Salutric; he simply forged client signatures and took money out of their Schwab accounts.

Registered investment adviser Steven W. Salutric appeared wealthy, philanthropic, and entrepreneurial. He donated more than $300,000 to the church at which he was treasurer.  He paid $600,000 to co-produce a motion picture.  And he invested more than $250,000 in two restaurants near his home.  This week an administrative law judge for the U.S. Securities and Exchange Commission (SEC) found that Salutric acquired that apparent wealth by stealing from clients of his registered investment advisory firm, Results One Financial LLC.  One of Salutric’s victims was a 96-year-old nursing home resident who suffered from dementia. (more…)

Movie Producer Accused of Running a Ponzi Scheme

According to prosecutors in Santa Ana, California, Mahmoud Karkehabadi (aka Mike Karkeh) orchestrated a multi-million Ponzi scheme, telling prospective investors that their money would go to finance movies starring the likes of Flavor Fav and mixed martial artist Quinton “Rampage” Jackson.

According to prosecutors in Santa Ana, California, Mahmoud Karkehabadi (aka Mike Karkeh) orchestrated a multi-million Ponzi scheme, telling prospective investors that their money would go to finance movies starring the likes of Flavor Fav and mixed martial artist Quinton “Rampage” Jackson.  Prosecutors say that Karkehabadi raised $11 million in “loans” from more than 150 investors nationwide, by promising them double-digit returns.  When those notes matured, Karkehabadi convinced many investors to roll them over instead of receiving return of principal. (more…)

Let the SEC Hear from You on the Arbitration Question

Please let the SEC know what you think of mandatory arbitration.

Among the things that the recently passed Dodd-Frank Act requires the SEC to do is to study and consider changes to the mandatory pre-dispute arbitration clauses that rob investors of their day in court in the event of a dispute with their stockbroker.  The SEC is currently soliciting comments from the public on the issue.  You can leave your comment by clicking on this link. (more…)

Prosecutors Indict Former Sheriff’s Deputy on Ponzi Charges

According to prosecutors in Grand Rapids, Michigan, former Kent County Sheriff’s Deputy Ryan Steensma ran a $1 million Ponzi scheme that promised profits from gold mining operations.

According to prosecutors in Grand Rapids, Michigan, former Kent County Sheriff’s Deputy Ryan Steensma ran a $1 million Ponzi scheme that promised profits from gold mining operations.  According to an article written by Nate Reens of The Grand Rapids Press: (more…)

FBI Arrests Man Behind Alleged Global Affinity Fraud

Investor’s Watchdog’s experience has been that extravagant spending is . . . a reliable indicator of an investment adviser who is spending his clients’ money.

Federal prosecutors claim that Eliyahu “Eli” Weinstein defrauded members of his tight knit Orthodox Jewish community.  If the allegations against him are true, he was an especially successful affinity fraudster who raised $200 million in California, New Jersey, Florida, and Israel.  According to a story by Brian T. Murray of the Newark Star-Ledger: (more…)

SEC Takes Emergency Action to Shut Down Alleged Oil and Gas Fraud

Oil and gas frauds will never fade. They’ve proven too good a vehicle for separating people from their life savings.

The U.S. Securities and Exchange Commission (“SEC’) has charged Houston resident Jon C. Ginder (“Ginder”) and two related companies, Northamerican Energy Group, Inc. (“NEG”) and Northamerican Energy Group Corp. (NEGC”), with securities fraud.  Specifically, the SEC claims that the defendants fraudulently raised approximately $3.5 million from about 50 investors between February 2008 and May 2010, The SEC’s press release reads in part: (more…)

Beware Real Estate Brokers Seeking Investments

Just because a trend is in the news, does not mean that the person trying to sell you an investment has found a profitable way to capitalize on it.

The pitch is familiar; we have seen it often in recent months here at Investor’s Watchdog   Loan us money.  We’ll buy houses at distressed prices, fix them up, sell them at a profit, and pay you a monthly return for making it possible. Prosecutors in California have charged Leesa Marie Ward, the chief executive of Ward Real Estate Brokerage & Foreclosure Services, and a colleague, Alison Ann Jensen, with using that pitch to swindle $4.5 million from investors.

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Scam Spotting 301 - Class #4

An RIA who announces to the world that he manages the finances of a certain celebrity client shows more concern for his own pocketbook than for the reasonable sensibilities of his clients.

Your assignment from last class was to identify three red flags that could have warned investors away from Ken Starr’’s star-studded Ponzi scheme.  There are more than three apparent to a seasoned investigator, but three of the most prominent are: (more…)

They’ll Even Pay Your Taxes!

Please remember that no two scams are identical and that scam operators have a tool kit that can penetrate even the most skeptical investor.

I have investigated hundreds of scams.  I am in the business of recognizing red flags that no one else would see. We often recognized those red flags in the promises that investment promoters make.  Sometimes the information that raises the red flag is subtle.  Sometimes it is rather obvious.  The U.S. Securities and Exchange Commission (SEC) believes that it has found a scam that fits in the latter category. (more…)

Advanced Scam Spotting - Here’s Your Homework Assignment

While our loyal readers await publication of Investor’s Watchdog’s first book on scam spotting (AMACOM Books, Fall 2011) we will use Shnayerson’s terrific article as our text for drawing lessons from the Starr case.

What a treat this morning to find that Michael Shnayerson has written an article for Vanity Fair about Financial-Adviser-to-the-Stars, Ken Starr, and his alleged $59 million Ponzi scheme.  While our loyal readers await publication of Investor’s Watchdog’s first book on scam spotting (AMACOM Books, Fall 2011) we will use Shnayerson’s terrific article as our text for drawing lessons from the Starr case.  So, class, your assignment for tomorrow is to read the Vanity Fair article and write-in, via the “Submit Comment” button below, with your thoughts on the facts that should have led Starr’s victims to protect their savings by unmasking him sooner.  Our loyal readers should be able to identify at least three red flags that were flying even from the early days of Starr’s scam.

WG Trading - Sometimes Stockbrokers and Investment Advisers Just Steal Your Money

Protection begins with information. Find out as much as you can about the very impressive stockbroker or investment adviser who says he can help you reach your financial goals.

Last week, the U.S. Securities and Exchange Commission obtained a final judgment against Paul Greenwood, a former principal of WG Trading Company, Limited, a New York brokerage firm which the SEC shut down via emergency enforcement action in February 2009.  The allegations against WG Trading and its principals are chilling, and a good reminder that looking behind the salesmanship of any stockbroker can mean the difference between a comfortable retirement and financial ruin.  The SEC’s press release reads, in part: (more…)

What You Can Learn From the SEC’s Case Against GE

The moral code of any publicly-traded company is simple: Good = more money. Bad = less money. That’s it. It is no more complicated than that, and it never changes.

This week, the U.S. Securities and Exchange Commission (“SEC”) filed charges against General Electric Company (“GE”) and two subsidiaries, alleging violation of the Foreign Corrupt Practices Act (“FCPA”)  The FCPA prohibits public companies from using bribes to secure business.  According to the SEC’s press release: (more…)

Anything for Another Fat Annuity Commission

Find out all you can about the broker who claims to have your best interests at heart, or risk learning the hard way that he is putting his own financial interests ahead of yours.

Darla Mercado of Investment News brings us the story of insurance agent James Otto of Overland Park, Kansas.  She reports that Missouri’s secretary of state has issued a cease-and-desist order against Otto, formerly an agent for Bankers Life and Casualty Co. (Bankers Life), ”alleging that he used an unregistered in-house brokerage to help liquidate clients’ accounts and use the proceeds to buy annuities.”  According to Mercado: (more…)

The Teacher Turned Day Trader

Day trading does not work because of the transaction costs.

According to WRAL in Raleigh, North Carolina, former teacher Ronnie D. Rainey convinced several people that he was a skilled day trader, making big profits through in-and-out trading of stocks.  He offered people the chance to capitalize on his skill by giving him their money to trade.  When he could not generate the promised returns, he sent his investors phony account statements showing that they were earning the promised returns.  Authorities estimate that he lost $3 million of his investors’ money.  When they caught up to him, Rainey was in Oklahoma.  According to WRAL:

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According to an article in smartcompany.com the Australian Securities and Investment Commission (ASIC) has won court approval of a proposal to wind up 13 companies associated with a possible Ponzi scheme.  The ASIC is concerned that the companies may have defrauded $16 million from more than 100 investors in the Victoria area.   The ASIC’s court victory allowed the ASIC to appoint an insolvency expert to wind up the affairs of the companies, including Meloka Pty Ltd, Contango Investments Pty Ltd, DIX-Walker Pty Ltd and Teronte Pty Ltd..  According to the ASIC, Peter van de Steeg, Jonathan Ezzy and Peter Berlowitz of Victoria and Scott Walker of Western Australia are  ”associated with the companies,” which promised profits from real estate investment and foreign currency trading. (more…)

Police Suspect a Possible Affinity Fraud Ponzi Scheme in Suburban Montreal

The fraud that we like to believe will never draw near to us is as prevalent as pollen in the springtime and as close as our next door neighbor.

Joel Goldenberg of TheSuburban.com has written an article about police suspicions that a Hampstead, Quebec resident has been operating a Ponzi scheme, possibly targeting Orthodox Jews. Specifically, Goldenberg writes that Perry Newman and his company, Dover Financial Corp. (Dover), are drawing scrutiny from the Montreal Police.  Goldenberg’s article is helpful, because it describes an all-too-common scenario in which an investor learns that what she thought was a comfortable nest egg is gone. Quoting extensively from involuntary bankruptcy petitions filed against Newman and Dover, Goldenberg writes: (more…)

SEC Shuts Down Yet Another Alleged Scam Using Promissory Notes

Scam artists are opportunists. They sell what they think investors most want to buy. In the wake of the worldwide economic crisis and the decimation of 401k accounts, what people most want now is some sense of security and stability.

The U.S. Securities and Exchange Commission (SEC) has charged Travis L. Wright, of Salt Lake City, Utah, of conducting an “offering fraud in which he raised nearly $145 million from approximately 175 investors.”  According to the SEC, “Wright sold these investors promissory notes issued by Waterford Loan Fund, LLC (the “Fund”) that were purportedly secured by a lien on a trust that held all the assets of the Fund.”  The SEC’s press release reads, in part: (more…)

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