Investment Fraud Lawyer Blog

The Wall Street Journal has reported that financial scams against the elderly are becoming so commonplace that the National Council on Aging calls them the “crime of the 21st century” (“Scams to Watch Out For,” WSJ). It describes investment scams against baby boomers (those over age 50) as being “rampant.” (“Boomers Wearing Bull’s-Eyes,” WSJ, Kelly Greene). The Wall Street Journal has now published a brief but helpful article entitled “Red Flags of Elder Fraud.”

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The Houston Athletics Foundation, which funds athletic scholarships for the University of Houston, is apparently the victim of a major ponzi scheme perpetrated by David Salinas, a Houston-based money manager. Approximately, $2.2 million (over 40 percent) of the Foundation’s assets are unaccounted for, having been supposedly invested in bonds that never existed. The ponzi scheme involved $39 million raised from more than 100 investors, including numerous high-profile college coaches.

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Promoters of fraudulent investments are targeting the 77 million baby boomers in the U.S. who make up 25 percent of the population, according to securities regulators and prosecutors (“Boomers Wearing Bull’s-Eyes,” Wall Street Journal, Kelly Greene). Regulators expect to file a record number of enforcement actions involving investors age 50 years and older, as financial fraud against boomers is “rampant” throughout the nation, according to the article.

In 2010, there were 1,241 criminal and civil regulatory fraud actions involving investors age 50 and over, versus 506 cases in 2009, according to the North American Securities Administrators Association (NASAA), the association of state securities regulators. Unfortunately, the number of enforcement actions is tiny compared to the number of actual fraud cases out there.

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The SEC’s Inspector General, David Kotz, has reportedly confirmed that the SEC improperly shredded documents related to closed investigations, and misled another federal agency, the National Archives and Records Administration, which had confronted the SEC last year about record destruction. Mr. Kotz’s report was issued to the SEC and has not officially been made public.

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Merrill Lynch agreed to pay $1 million to settle charges by the Financial Industry Regulatory Authority (FINRA) that it failed to supervise Bruce Hammonds, a San Antonio-based representative, who was ‘selling away’ from the firm by operating a $1 million dollar Ponzi scheme for more than 10 months. The ponzi scheme, named B&J Partnership, used Merrill Lynch accounts.

Continue reading "'Selling Away' Abuses Result in Merrill Lynch Being Fined $1 Million" »

Brokers often pitch alternative investments when the stock market is declining and returns on traditionally safe investments are too low. A few alternative investments may have some merit. Many more are flawed, bad and ugly in that they provide investors little more than uncompensated high risk. Then there are those that cross the line into the realm of the outright fraudulent. Unless the brokerage firm is itself a criminal enterprise, brokers often try sell fraudulent investments away from the firm to avoid detection by the firm. The practice is known as “selling away.”

Continue reading "'Selling Away' Abuses Are Costing Investors Millions" »

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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A recent report from the SEC Inspector General has given the SEC another “black eye.” Apparently, senior management at the SEC allowed its general counsel. David Becker, to participate and vote in a decision on whether Madoff victims would be entitled to recover fraudulent “profits” in their account or whether recoveries would be limited to the amounts invested. The problem - Mr. Becker had a personal interest in the decision. He along with two brothers inherited a Madoff account held by his mother, who died in 2004, and Becker and his brother closed the account shortly thereafter with a $1.5 million “profit” (the amount invested by his mother was $500,000).

Continue reading "Another 'Black Eye' for the SEC" »

Affinity investment fraud is a big problem in the United States, according to regulators. Fraudsters take advantage of a presumption in the minds of victims that a person with whom you have something in common is trustworthy. That this is not necessarily so was demonstrated once again when deaf investors lost $3.45 million to “one of their own,” a deaf investment advisor. According to a recent InvestmentNews article by Liz Skinner entitled “Deaf investment adviser defrauded 7,000 deaf clients: SEC.”

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Matt Taibbi’s recent Rolling Stone article entitled “Is the SEC Covering Up Wall Street’s Crimes?” questions whether corruption plagues the U.S. Securities and Exchange Commission. In that article Taibbi meticulously contends that Wall Street banks and their law firms have, over and over again, shut down fraud investigations by influencing senior SEC officials, who later take lucrative jobs at the very banks that were the targets of the investigations or at the law firms representing those banks.

Continue reading "Is the Fox Guarding the (Investors') Chicken House?" »

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.

Continue reading "Securities Cops Issue Warnings about Current Investment Scams" »

More than a year after it was created by the Dodd-Frank financial reform act, the U.S. Securities and Exchange Commission (SEC) opened its Office of the Whistleblower on August 12, 2011. According to a statement released by SEC Director of Enforcement Robert Khuzami, “early and quick law enforcement action is the key to preventing securities fraud and avoiding investor losses, and the whistleblower program gives us the tools to help achieve that goal.” Investor rights attorney Craig T. Jones of Page Perry LLC in Atlanta agrees: “This program will catch fraud sooner because it gives Wall Street insiders a significant cash incentive to be the first to come forward with information about abusive practices. Not only will whistleblowers and their attorneys profit from doing the right thing, but the investing public as a whole will benefit.”

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When the markets go haywire, the financial scam artists come out of the woodwork. According to attorney Pratt H. Davis of the securities and arbitration law firm Page Perry, LLC, “with the recent extreme market volatility, investors looking for security can be increasingly easy targets for financial scam artists.” According to Mr. Davis, “in times of financial distress investors can be lured by scam artists promoting ‘safe’ or ‘risk free’ investments that offer increased returns despite the current market conditions.”

Continue reading "Are You the Victim of a Financial Scam?" »

Professional athletes and coaches are often prime targets of investment promoters, some of whom purport to be their trusted friends and advisers. Unfortunately, the investments these “advisers” sell sometimes turn out to be something entirely different from what they were represented to be, resulting in hundreds of thousands, even millions, of dollars in losses, according to Andy Katz’s ESPN.com article entitled “Source: No NCAA plans for fraud inquiry.”

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Senior financial abuse is a growing problem and financial advisors and accountants are best able to detect senior financial abuse, even better than a family member, according to Liz Skinner’s InvestmentNews article entitled “Identifying elder financial fraud.” That is because knowledgeable professionals who regularly review their financial documents are more apt to see changes in spending and investing that even family members might not notice. Seniors may tell their adviser about falling for a scam when they are unwilling to tell their own children. Additionally, financial professionals are generally better equipped to dissuade seniors from unsuitable purchases and investments.

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Describing JP Morgan Chase as an “active enabler” that “knew” about the fraud being perpetrated by Bernard Madoff, the Madoff bankruptcy trustee has amended his complaint against JPMorgan Chase to increase the amount of compensatory damages claimed from $5.4 billion to $19 billion, an amount that is based on the trustee’s latest estimate of principal lost by all Madoff investors by the time the Ponzi scheme collapsed in December 2008, according to Linda Sandler’s Bloomberg article entitled against JP Morgan to “JPMorgan Hit With $19 Billion Damages Claim by Madoff Trustee.” The suit to recover assets to be distributed to defrauded Madoff investors alleges that JP Morgan had “actual knowledge” of the Madoff ponzi scheme but failed to take any action to stop the fraud.

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UBS and other Wall Street banks have found a way to profit from the Madoff ponzi scheme, swooping in like vultures to snap up claims from defrauded investors at a fraction of their nominal value, according to Michael Rothfield’s Wall Street Journal article entitled “Madoff Claims Lure Banks.” At the same time, UBS is being sued by the Madoff bankruptcy trustee for allegedly ignoring warning signs of the fraud while receiving fees as a custodian and sponsor of funds that invested with Madoff. By defending this suit, UBS and Royal Bank of Scotland (another bank being sued by the Madoff trustee in connection with the fraud) are effectively “fighting off victims of the fraud, while at the same time seeking to profit from payouts based on other claims.”

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The dust recently settled on another Ponzi scheme. This time the damage was done in Florida, and involved a man who lied to investors about his so-called grocery business. Neil Shapiro was sentenced to twenty years in prison after pleading guilty to securities fraud and money laundering; he was also ordered to pay $82 million in restitution to defrauded investors but they are unlikely to ever see that money. Shapiro raised $930 million through his company, Capitol Investments USA Inc. Shapiro used approximately $770 million to pay back to investors but blew the rest.

Continue reading "Florida Man Guilty of Running a Ponzi Scheme" »

Fraudulent acts make headlines nearly every day. But when fraud occurs amongst friends and family, the violation really “hits home” – perhaps even in the most literal sense. Unfortunately, it is surprising how callous or devious some people can be, even the people trusted the most.

Continue reading "Affinity Fraud Generally Occurs When People Least Expect It" »