SRQ Magazine published this November 1st look at how Brexit might affect local investors. The author, Jacob Ogles, includes quotes from Path Financial president Raul Elizalde and shares his thoughts on what individuals could be doing right now to keep their investments safe. Click here to read the full article at SRQ Magazine.by
According to OnWallStreet magazine, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) slapped Merrill Lynch with massive fines for misusing client’s cash while failing to safeguard their securities, and for failing to disclose material facts to clients about structured notes products.
The major claim by the SEC was that Merrill artificially reduced required cash deposits in customer accounts to free up billions of dollars per week to finance its own trading activities. The SEC said that if any trade had collapsed, Merrill’s customers would have been exposed to massive shortfalls.
In addition, Merrill disregarded rules for years by holding up to $58bn per day of customer securities in clearing bank accounts that were not shielded from claims by third parties and subject to general liens.
Merrill admitted to the wrongdoing. The article can be found here.by
Two former Boston-area hedge fund managers were sentenced on Dec. 14, 2015, for conspiring to mislead investors into investing more than $500 million in their fraudulent hedge fund business.
From 2005 through 2011, Gabriel and Marco Bitran solicited and maintained investors in their hedge fund and investment advisory businesses through false claims that, for eight or more years they had delivered average annual returns between 16 and 23%, with no down years. But it was a scam.
Click here to read the statement from the department of Justice.
The moral of this story is not new: if it is too good to be true, it most certainly is. Beware of anybody claiming that they can produce outrageous returns. Even if they come from MIT or Harvard.
InvestmentNews.com reports that perks distract annuity salespeople from focusing on what’s best for their clients. This is in line with recent and not-so-recent criticism of annuities as hopelessly complicated investment products that often benefit brokers and insurance companies more than investors:
“Vacations at luxury resorts, golf outings, tickets to sporting events and other incentives have led to inappropriate sales of annuities, Sen. Elizabeth Warren, D-Mass., claimed in a study released Tuesday.
“In a survey of 15 firms, Ms. Warren’s staff found 13 offered non-cash inducements to their agents to sell their annuities, which guarantee income but often are complicated, are known for having high fees, and can tie up large chunks of a client’s money.
“Disclosure requirements surrounding the perks are inadequate and usually buried in lengthy prospectuses, leaving investors vulnerable to sales professionals who are trying to win an award rather than find the best investment products for their clients, according to the report.”
Read the entire InvestmentNews article here.by
The SEC just caught an advisory firm in Indiana who put their own investors in a Ponzi scheme. The lesson here is that non-traded, exotic investments that promise extraordinary returns are rarely a good idea for individual investors who lack the resources or know-how to conduct due diligence.
According to the SEC:
The Securities and Exchange Commission today announced charges against an Indianapolis investment adviser, its president, two associates and several affiliated companies for engaging in two fraudulent farm loan offerings, in which they made ponzi scheme payments to investors in other offerings and paid themselves hundreds of thousands of dollars in undisclosed fees. The SEC obtained a temporary restraining order and emergency asset freeze to halt the scheme.
According to the SEC’s complaint, filed in the U.S. District Court for the Southern District of Indiana, in 2013 and 2014, Veros Partners, Inc., its president, Matthew D. Haab, and two associates, attorney Jeffrey B. Risinger and Tobin J. Senefeld, fraudulently raised at least $15 million from at least 80 investors, most of whom were Veros advisory clients. The investors were informed that their funds would be used to make short-term operating loans to farmers, but instead, significant portions of the loans were to cover the farmers’ unpaid debt on loans from prior offerings. According to the SEC’s complaint, Haab, Risinger and Senefeld used money from the two offerings to pay millions of dollars to investors in prior farm loan offerings and to pay themselves over $800,000 in undisclosed “success” and “interest rate spread” fees.
In addition to Veros, Haab, Risinger, and Senefeld, the SEC charged Veros Farm Loan Holding LLC and FarmGrowCap LLC, the issuers of the offerings, and PinCap LLC. The SEC also charged registered broker-dealer Pin Financial LLC as a relief defendant.
The Honorable Jane Magnus-Stinson of the U.S. District Court for the Southern District of Indiana issued an asset freeze order against the defendants as well as a temporary restraining order prohibiting them from soliciting, accepting or depositing any monies from any actual or prospective investors, and in the case of Veros, any investors in private securities offerings. Judge Magnus-Stinson also ordered that a receiver be appointed. A preliminary injunction hearing has been scheduled for May 1, 2015.
The SEC’s complaint charges the defendants with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and also charges Veros and Haab with violating Sections 206(1), 206(2) of the Investment Advisers Act, and Veros with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2. The SEC’s complaint seeks permanent injunctions and disgorgement against all defendants and a financial penalty. The SEC’s complaint names Pin Financial for the purposes of recovering proceeds it received from the fraud.
The case is here:by
After two years of virtually uninterrupted gains, the stock market took a scary tumble in October. Opinions are highly divided on what this means.
The bulls think that the dip is a buying opportunity because the economy is strong and the Fed’s ongoing stimulus places a bottom on asset prices. The bears say that the economy is vulnerable to serious global challenges against which the protection that Fed policy supposedly provides will come short. The fight between the sides is closely contested, and investors are caught in the middle. Erring on the side of prudence may be the way to go. Read the full report
Written by Raul Elizaldeby
A Raymond James broker based in Greenville, SC, has been accused of stealing almost $3 million from 13 clients since 2000 and has been barred from the industry after Finra – the self-regulatory agency that oversees broker-dealers – accused him of running a Ponzi scheme. Raymond James fired him on June 4 from the Greenville, SC branch where he was based.
Finra (Financial Industry Regulatory Authority) said that Claus Foerster, a stockbroker for 25 years, had solicited investments for a fake fund known as S.G. Investments, which was simply a bank account Mr. Foerster controlled. He had 13 customers moving funds from their brokerage accounts to their personal bank accounts and then writing checks payable to S.G. Investments. He provided some customers with fictitious statements and provided at least two with monthly “dividend” payments.
According to FINRA, Mr. Foerster signed a letter accepting Finra’s punishment without admitting or denying Finra’s allegations. Raymond James says that it reported the matter to law enforcement officials.
What can you learn from this?
1) Don’t write a check to purchase any financial investment. Open an account at a reputable broker-dealer and custodian, and make the investment through that account instead. This will not completely protect you from fraud, of course: a lot of people Enron stock through their accounts at Fidelity, for example. But it will go a long way to protect you from a whole class of investments that have not passed even the most basic legitimacy tests.
2) Don’t assume that by appearing in a guide, financial advisors go through any kind of due diligence. For instance, in the “Find the Best” financial advisor guide, Claus Foerster still showed up more than a month after being fired by Raymond James and it was there at the time of writing this article. Go directly to brokercheck.com or adviserinfo.sec.gov to see if the advisor is licensed or has been the subject of a complaint.
Written by: Raul Elizaldeby