The Financial Industry Regulatory Authority (FINRA) recently issued a report outlining is its regulatory and examination priorities for 2012. The securities industry regulator is focusing on conduct and products meant to beat the market that are unsuitable investments for many investors.
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).
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.
Continue reading "Risky Investments Flood Self Directed IRAs" »
Many investors in alternative investments are in for unpleasant surprises. Alternative investments are very popular these days, as traditional stock and bond investments are not doing well. Alternative Investments include a wide variety of investments that fall outside the traditional stock and bond categories. Examples include structured products (such as principal protected notes and reverse convertibles); hedge funds; private equity; nontraded REITs; niche, leveraged, inverse leveraged, and synthetic exchange traded funds; and many others.
Continue reading "Alternative Investments - High Risk 'Pigs in a Poke'" »
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" »
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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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" »
Daniel Indiviglio writes that Wall Street is designing a new derivative that would allow purchasers to hedge against longevity risk (or speculate on it) in his article entitled “Death Derivatives: Has Wall Street Finally Gone Too Far?” in the Atlantic.
Continue reading "Wall Street Wagers on Death Benefits" »
Life Partners Holdings, Inc. and its two top officers have received a Wells notice from the Securities and Exchange Commission informing them that the SEC staff intends to recommend a civil enforcement action against them for allegedly misrepresenting the life expectancies of insureds whose life insurance policies it sold to retail investors, according to a Wall Street Journal article by Mark Maremont and Leslie Scism entitled “Life Partners Could Face SEC Action.” According to the article, Life Partners has sold billions of dollars of these policies.
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Securities regulators all agree that exploitation of retirees is a significant and growing problem. According to the U.S. Securities and Exchange Commission, 40 million Americans are age 65 or older, and that number will be 89 million in 2050. Seniors make up 15% of the U.S. population but 30% of fraud victims.
Continue reading "Financial Exploitation of Senior Citizens Continues to Increase" »
The Securities and Exchange Commission recently charged Provident Capital Indemnity Ltd., its president, and its auditor with conducting a massive life settlement fraud, according to Darla Mercado’s InvestmentNews article, “Backer of life settlement insurers hit with fraud charges.” The SEC’s suit also names Provident Capital’s president, Minor Vargas Calvo, and supposed outside auditor, Jorge L. Castillo, as defendants.
Continue reading "SEC Charges Company with Massive Life Settlement Fraud" »
Life Partners Holdings Inc., a Waco, Texas company that has arranged sales of several billion dollars of life-insurance policies to investors, is being dissected by the Securities and Exchange Commission, according to Mark Maremont and Leslie Scism in their Wall Street Journal article, “SEC Probes Company Over Life-Span Data.” The SEC is examining how the company derived its mortality estimates, which are critical for investors who seek to value the investment.
Leslie Scism’s Wall Street Journal article, “Insurers Sued Over Death Bets,” describes how life insurance policies sold to investors, who expect to receive a big payment when the insured dies, have led to lawsuits by insurance companies and investors against each other, as well as by relatives of some of the deceased elderly, alleging that death benefits belong to the family members.
