Four tips to avoid getting fleeced by your broker

The-Wolf-Of-Wall-Street-Stockbroker-665x385This is a brief but helpful article from the Associated Press that appeared in the Salt Lake Tribune today.  I would add that although the majority of stock brokers are honest and straightforward, there are some out there who are not so it pays to do your homework online before you hire someone to manage your accounts.  And always make sure you understand what fees and commissions you will be paying when you purchase of financial products and services.

-Mark Pugsley


 

Can your broker or adviser be trusted? There is no way to be 100 percent certain, but far too many investors don’t even take a few simple steps to protect themselves. Start by asking questions. Here are four key ones, and tips for finding the answers.

• WHO’S PAYING YOU? If a broker or adviser is pushing a specific investment, maybe it’s because they’re getting paid to do so. Many mutual funds charge one-time “sales loads” or annual “12b-1” fees that come out of your pocket and go into theirs. Cheaper, equally good funds may be available, but they may not tell you.

Make sure to also ask about commissions, markups or hidden fees they may get for selling stocks, bonds and insurance products.

• ARE YOU A FIDUCIARY? You’re in safer hands if the broker or adviser is held to a fiduciary standard. That requires them to put your interest ahead of their own, so they must tell you about cheaper alternatives. They also must monitor your investment.

That’s not the case for many brokers now. They are required only to limit recommendations to products that are “suitable” based on your financial situation, age and appetite for risk, which critics say gives too much room for foul play.

• WHAT DO THOSE LETTERS MEAN?: The number of professional designations and acronyms has jumped in recent years, but don’t be fooled. Regulators say some reflect higher standards than others. If you’re confused, best to insist that your adviser has a well-known one, like certified financial planner, which has strict requirements and carries the weight of the fiduciary standard.

• WHAT’S ON YOUR RAP SHEET?: Client complaints and regulatory action against brokers can be found at a database maintained at industry regulator FINRA. Type in the name of the broker at BrokerCheck. But the site isn’t foolproof. Much of the information depends on brokers updating information themselves, and older complaints are purged regularly.

You may also want to check out your broker or adviser’s so-called ADV form filed with the SEC at adviserinfo.sec.gov. It may help to Google the broker, too.

5 ways fraudsters trick investors

This is a repost of an article by Matt Egan that appeared on CNN Money last week.

NEW YORK (CNNMoney)
Fraudsters use sleights of hand and other trickery that even magicians would be envious of.  Americans lose an estimated $50 billion a year to fraud, including Ponzi schemes, pyramid schemes and other types of investment fraud.

“People fall for fraud because fraudsters are that good with special effects. It seems that real,” Michael Hendon, a representative from the Commodity Futures Trading Commission.

Here are tricks that regulators and former fraudsters cited at a recent New Jersey securities fraud summit:

1. All the cool kids are doing it!  Drug dealers aren’t the only ones resorting to peer pressure. 

Fraudsters try to push their victims into shady deals by attracting people from within the same social group like a church organization or an alumni association.

Such affinity fraud attempts to lower victims’ defenses and is very difficult for regulators to identify.  “They prey upon the trust of that group to make them feel like this is something they want to be involved with,” said Brian McGuire, AARP New Jersey associate state director for advocacy.

2. Promising the moon: If it sounds too good to be true, it probably is too good to be true.

Forty-two percent of respondents in a FINRA poll found an annual return of 110% for an investment “appealing,” and 43% said the same about fully guaranteed investments.

“If someone tells you your investment is guaranteed, that’s when your spidey sense should come on,” says Peter Cole, director of special investigations at the New Jersey Bureau of Securities.

3. False sense of urgency: Just like pushy car sales people, fraudsters try to pressure their victims into making decisions before they can do their homework.

They’ll say the offer must be made on the spot because the deal closes soon or supply is running low.  “There are very few once in a lifetime opportunities. Real investments, the real deals, will be there tomorrow,” said Gerri Walsh, president of the FINRA Investor Education Foundation.

4. Pretenders: Fraudsters capitalize on people’s willingness to trust them.

While they may claim to be registered investment advisers or certified financial planners,that’s not always the case.  Investors can easily check the status of a purported broker or investment adviser by logging into FINRA’s BrokerCheck website.  Look for obvious red flags like securities violations.

5.Cooking the books: Some fraudsters exploit the system by finding weaknesses in the auditing process.

“Want to trust audited numbers? I used to brag about them all the time,” said Sam E. Antar, former CFO of Crazy Eddie, the electronics chain that became a symbol for corporate fraud in the 1980s.

Antar pointed to a report by the Association of Certified Fraud Examiners that shows external audits rarely uncover fraud.

UPDATE: Criminal Charges Against Rick Koerber Dismissed

UPDATE:  Five years after the initial indictment charging Rick Koerber with one of the biggest financial frauds in Utah history, last week United States District Court Judge  Clark Waddoups ruled that he will dismiss the case because federal prosecutors failed to follow speedy trial requirements.  This is a blow to the U.S. Attorneys Office’s efforts to prosecute Mr. Koerber, not to mention all of the hundreds of victims who were hoping to recover some of their lost funds through a possible plea deal or conviction that would likely include a requirement that Mr. Koerber provide some restitution to the victims of his Ponzi Scheme.

According to the Salt Lake Tribune, Judge Waddoups has not yet decided whether the charges can be refiled.

 


 

The U.S. Attorneys has office filed a new indictment against Rick Koerber, who is alleged to have run a Ponzi scheme that took in more than $100 million from Utah investors.  Last week a federal grand jury returned a new 20-count indictment alleging that Koerber engaged in widespread investment and tax fraud.

According to an article in the Salt Lake Tribune last week, this new indictment follows a federal judge’s decision in July to throw out a key piece of evidence in Koerber’s case.  “Assistant U.S. Attorney Stewart Walz previously said the ruling by U.S. District Judge Clark Waddoups affected a “significant” part of an existing 22-count indictment alleging fraud, money laundering and tax evasion by Koerber in his operation of FranklinSquires Cos. and related real-estate investment businesses.”  This ruling meant that prosecutors had to file a new indictment containing small changes to a section of the indictment describing the alleged scheme and artifice to defraud. Continue reading “UPDATE: Criminal Charges Against Rick Koerber Dismissed”