Investment Fraud Lawyer Blog

Given the array of exotic alternative investments being sold to the public, it’s logical that many investors often don’t understand what they are buying. What is even scarier is that it is likely their professional investment adviser doesn’t understand the alternative investment either. Investment advisers – 75 percent of them – admit they do not understand alternative investments. Notwithstanding their puzzlement, 50 percent of advisers said they intend to increase their use of them in their clients’ accounts this year. They could use some help, however, because of alternative investments are so confusing. (“Alternatives spur anxiety,” InvestmentNews).

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Preparing for retirement should include preparing for the risk of diminished mental capacity, according to noted financial writer Jane Bryant Quinn (“Losing Your Grip?”). It is an unpleasant fact of life that, as we age, we become less competent to make financial decisions. A 2009 study on financial decision-making found that this ability peaks at age 53 and declines thereafter, according to Ms. Quinn’s article. Another study at Texas Tech University revealed that what we lose 2% of what we used to know about financial matters each year after age 60, but, paradoxically, we gain confidence as we lose this knowledge. All of this makes us vulnerable to serious financial errors and even fraud, according to Ms. Quinn.

Continue reading "AARP Article Urges Seniors to be Vigilant in Watching Out for Financial Scams" »

The SEC is going after advisory firms and their principals that misrepresent facts that bear on their experience and credentials on form ADVs. Such violations suggest an intent to mislead investors. ("ADV crackdown on, as SEC says firm claimed $200M in AUM, had $3M,” InvestmentNews).

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Even in today’s turbulent economy, many people dream of retiring early and living off of their investments. On occasion, unscrupulous investment advisers have been known to take advantage of this wish by promoting deceptive early retirement schemes. This problem has become a big enough problem that the SEC and FINRA have started warning investors to beware.

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Concerns have developed that certain stock brokerage firms have misused “senior” designations in a manner that is misleading to investors. In fact, the Financial Industry Regulatory Authority Inc. (FINRA ) is warning Wall Street brokerage firms about the use of special “senior” designations when marketing investments products.

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The aging baby boom population necessarily means that the numbers of investors who suffer from diminished mental capacity or dementia, such as Alzheimer’s disease, are increasing. Cognitively impaired individuals are at higher risk for financial exploitation. Most investment professionals realize that diminished capacity presents problems that need to be dealt with.

Continue reading "More Investment Protection Needed for Vulnerable Senior Citizens" »

MarketWatch’s Chuck Jaffe describes nontraded REITs as the “Stupid Investment of the Week.” He came to that conclusion after a big industry meeting promoting alternative investments, including nontraded real estate investment trusts, to financial advisors and money managers. The main disadvantage of nontraded REITs, according to Jaffee, is illiquidity, which flows from the absence of a ready market and restrictions on when and how they can be sold.

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Many target-date funds label their retirement-stage funds as “retirement income” funds, but that is misleading because these funds aren’t designed to generate income even though their names suggest otherwise.. See Tom Lauricella’s Wall Street Journal article entitled “’Target-Date’ Funds Shortchanging Retirees

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As recently reported by InvestmentNews, The Securities and Exchange Commission (“SEC”) and the North American Securities Administrators Association, Inc. (“NASAA”) jointly issued an investor alert warning about risks associated with self-directed IRAs. These IRAs differ from traditional IRAs in that they allow owners to invest their retirement savings in a number of unusual and sometimes risky investment vehicles, including real estate, life settlements, limited partnerships and private placements.

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Knowledge about financial matters falls 2% each year after age 60, while, at the same time, confidence in being financially knowledgeable increases, according to a study done by Michael Finke, an associate professor at Texas Tech University and other entitled “Old Age and the Decline in Financial Literacy."

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Many investors have reason to support the Occupy Wall Street movement that objects to Wall Street greed. These investors have seen their hard-earned money dissipate in the hands of their “trusted financial professionals.”

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Investors should use extreme caution before investing in alternative investments. Alternative investments have become the popular “investment du jour" but these investments are fraught with risks. Simply stated, alternative investments are not the panacea that so-called experts represent them to be. For the reasons discussed below, investors need to be very skeptical of any recommendation encouraging them to invest in alternative investments.

Continue reading "Most Alternative Investments Carry Huge Risks" »

Investment fraud accounts for $40 billion in investor losses per year, according to the association of state securities regulators called the North American Securities Administrators Association (NASAA). Con artists take advantage of fear as well as greed, and fear of running out of money is prevalent these days.

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The time is ripe for financial scammers who seek to take advantage of senior investors. Recently a 76-year-old Texas insurance agent was sentenced to up to 15 years for selling fake annuities to other elderly investors. The scammer in this case just happened to be the same age as many of his elderly victims. Mr. Langford apparently stole close to $7 million from dozens of clients through the sale of phony “private annuities” and promissory notes that promised interest rates as high as 9%.

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Many investors, both individuals and corporations, were misled by their brokers and harmed during the credit crisis. For various reasons, however, many such investors have not yet taken action to recover their losses. Some have delayed taking action in order to see whether the misconduct warranted legal action while others just put it off until a later time. Investors need to appreciate that time is running out on their claims, and they should act now or forever hold their peace.

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Brokers and financial advisers are recommending higher yielding “floating rate” funds to investors seeking more yield in the current low yield environment, but, for a number of reasons, regulators are warning that these investments are risky.

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Sales of structured notes issued by Bank of America have sunk to the lowest level since January 2008 as a result of investors’ concerns about the creditworthiness of the bank, according to Matt Robinson’s Bloomberg article entitled “Bank of America Structured Notes Sales Drop as Buyers ‘Shy Away.’” Similarly, credit default swaps on BofA have surged recently, reflecting the increased premium being demanded by third parties to make good on BofA’s debt obligations should the bank default on them.

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Many registered investment advisors and brokerage firms have increased their use of alternative investments for clients, many of whom are retired and lack the knowledge and sophistication to understand the complex investments, according to Liz Skinner’s InvestmentNews article entitled “Clients clamoring for alternative investments and advisers obliging.” But are alternative investments suitable for most investors? Similarly, are most investors provided with balanced disclosures of the risks that they are taking when they invest in alternative investments? Unfortunately, the answer to both questions appears to be no.

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Wall Street is aggressively selling so-called structured notes as a “safe” way to earn increased returns without increased risk. The appeal of such a pitch is obvious in these times of low interest rates and stomach-churning stock market volatility. Structured notes are gaining in popularity. Retail sales of structured notes increased by 46% in 2010 to a record $49.4 billion, according to Bloomberg, and are expected to be up again sharply in 2011. But beware, says Fortune magazine contributor Janice Revell (“Beware of Wall Street’s latest ‘safe’ investment,” CNNMoney), there is increased risk and the increased returns are illusory.

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The association of state securities regulators known as NASAA has released its top 10 investment traps. NASAA finds that scam artists are peddling various get-rich-quick schemes to take advantage of the economic uncertainty. According to NASAA, investments that investors should be particularly wary of include distressed real estate schemes, energy investments, gold and precious metal investments, promissory notes, and securitized life settlement contracts. Tactics used to peddle such investments often involve affinity fraud, bogus or exaggerated credentials, mirror trading, private placements, and securities and investment advice offered by unlicensed agents.

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