to Protect Your Money From Theft by Dishonest
people in charge of their investment portfolios than ever before, state
securities officials are warning investors of the increasing sophistication of
investment advisers who steal money from unsuspecting clients.
Victims include everyone from the retired couple next door, to the hot-shot
young executive hoping to make a fast buck, to the doctor and his country-club
friends. State securities agencies are moving aggressively to catch these
swindlers and warn everyone that constant vigilance is the basic ingredient of
being an investor in todayís securities market.
Although most investment advisers are honest, those that are not see the
burgeoning field of financial advice as a great way to line their own pockets.
The danger is compounded by the average investorís desire for maximum return,
the concern of retirees worried about outliving their savings, the increase in
investment opportunities, and the growing number of individuals holding
themselves out as qualified investment advisers nationwide.
The Texas State Securities Board, for example, reported that in the first five
months of 1996, it received an average of 170 applications to register
investment adviser company salespersons each month -- a rate more than twice
that of previous years. By the end of Illinoisís fiscal year ending June 30,
1996, 1,466 investment advisers had been registered by the Securities Department
-- an increase of 5.7% over the preceding year.
Fraud and Abuse
The following cases are a sample of the new type of financial scams by
self-proclaimed and registered small investment advisers that state securities
enforcement officials are encountering:
Maryland-based investment adviser Joshua Fry, known widely due to his
Saturday-morning radio show, induced his clients to turn over more than $4
million by touting phony performance figures for a bogus mutual fund called
the GTC Fund, which stood for "Good `Til Canceled," that promised "maximum
capital growth consistent with the preservation of capital." Fry used the
money to run a typical Ponzi scheme in which early investors were paid with
later victims` money. The money also supported a lavish lifestyle that
included his own horse racing business and gambling junkets. Arrested in
Cincinnati, he was ultimately sentenced to eight years in jail.
Illinois, Howard and John Bozovich were not properly registered as
investment advisers. Nevertheless, this father-and-son accounting firm told
its clients that it would pool investor funds and purchase various
securities. Twelve investors ultimately provided $1.7 million. Investigators
from the Illinois Securities Department uncovered massive diversion of
investor funds for the personal benefit of the Bozovichs. Victims included
an entire church congregation where one of the Bozovichs served as
treasurer. Both men were found guilty in state and federal courts. Howard
was sentenced to 15 years. John received 11.
Virginia, registered investment adviser Robert K. Williams, owner of College
Planning Services of Virginia Beach, advertised his expertise in
repositioning assets for families seeking financial aid for their
college-bound children. Offering fraudulent securities and trust agreements,
he obtained $293,000 from 14 Virginia investors and used the money to pay
for personal and business expenses including a luxury Mercedes with the
license plate IPLAN4U. One of his victims was a 19-year-old man who lost
$15,000 he had received after his father had died from cancer. Williams was
convicted on one count of mail fraud, sentenced to 24 months in prison plus
three years of probation, and ordered to make restitution.
Colorado Division of Securities reports that Murleen K. Kunzman swindled
$1.8 million from 80 individuals she recruited from her income tax
preparation service. In league with her husband and son, the Greeley,
Colorado woman convinced her carefully selected clients that they would
receive returns higher than certificates of deposit from nine separate
limited partnerships in residential mortgage loans that she offered. After
pleading guilty, she was convicted of securities fraud and money laundering
and sentenced to 57 months in federal prison. Her former clients lost
everything they invested.
pro football player with a history of being disciplined for securities
violations by the New York Stock Exchange, the National Association of
Securities Dealers, as well as New Hampshire and Vermont, this
self-proclaimed investment adviser was arrested in September 1995 after a
joint investigation by the Vermont Securities Division and the FBI. The
accused allegedly ran a Ponzi scheme in which early investors were paid with
money provided by later ones, then encouraged to invest ever larger sums.
Residents of Vermont, New Hampshire, Massachusetts, and Florida may have
been bilked out of as much as $30 million. The accused owned several luxury
homes and an airplane, was an avid golfer, and recruited many of his victims
from a local country club.
The States Take Action
Until recently, all investment adviser firms in the United States -- entrusted
with $10 trillion in customer funds -- were required to register with the
Securities and Exchange Commission (SEC). But as a result of the National
Securities Markets Improvement Act, which was signed into law by President
Clinton on October 11, 1996, the states now have primary regulatory
responsibility for investment adviser firms with less than $25 million in assets
under management -- approximately 19,000 of the 25,000 investment advisers and
financial planners operating nationwide.
To date, all but four states require investment adviser representatives to be
licensed. (Colorado, Ohio, Iowa, and Wyoming are the exceptions.) Most states
require investment adviser representatives to pass an examination, undergo
background checks, renew their registration annually, and report changes in
their businesses or addresses promptly. States also review an applicantís
disciplinary history and financial stability prior to allowing the investment
adviser to conduct business in a given jurisdiction.
The point-of-contact sale for most people is the investment adviser
representative or salesperson. Over 30 states require that investment adviser
representatives be licensed -- the SEC does not.
Most states also protect investors by actively pursuing a program of
unannounced, on-site examinations of small investment advisers and careful
screening of promotional materials.
You Can Do To Protect Yourself...
1. Investigate the investment adviser and salesperson thoroughly. First,
call your state securities agency to find out if he or she is properly licensed
to provide investment advice. If the individual also is licensed as a
stockbroker, background information will be available through your state
securities agency from the Central Registration Depository (CRD) -- a
computerized reference system operated jointly by the North American Securities
Administrators Association (NASAA) and the National Association of Securities
Dealers (NASD). To find the number of the securities administrator in your
state, look in your telephone book under state government or call (202)
2. Is the investment opportunity registered for sale in the state in which
you live? Call your state securities agency to find out. All investment
opportunities must be registered or exempt. If one being recommended to you
isnít registered or exempt, consider that a red warning flag to investigate
further. Ask for written "disclosure" information. Review it carefully and make
sure that you understand all of the risks involved. If you have questions, ask,
and keep asking until you get an answer you understand. If youíre pressured by
an investment adviser to make a hasty decision, just say "no." After all, it is
3. Always stay in charge of your money. Protect your nest egg. If the
world of investments baffles you, carve out time to educate yourself. Read one
or more of the many magazines devoted to personal finance on a regular basis.
Once youíve made an investment, carefully review your account statement. Make
sure you know where your money is being held. Generally, you should receive
account statements from the custodian of the securities as well as from your
investment adviser. Confirm that all transactions are ones youíve authorized.
4. Remember that con artists are usually extremely polite. Hereís how you
will probably be approached: A successful swindler will deliver a
professional-sounding sales pitch that makes the flimsiest investment deal sound
as safe as putting money in the bank. He or she will be extremely polite, dress
in expensive clothes, and may work out of impressive offices with prestigious
addresses. Many troll for prospects at houses of worship, country clubs, or
senior centers. Others lull investors into complacency by first providing a
sound financial service, then moving in for the kill. Before turning over any of
your hard-earned money, call your state securities administrator and check out
5. Keep greed in check. If the return on an investment sounds too good to
be true, it probably is. A legitimate adviser should find out about your
financial needs and goals, as well as the level of risk you are comfortable
with, then suggest a "suitable investment." Donít allow the promise of inflated
returns to cloud your judgment. Many people secretly believe that a
rags-to-riches story can become a reality for them -- if only they get the right
break. Con artists play upon the dreamer in all of us. Donít let them sabotage
6. Keep notes about phone conversations and meetings. Itís important to
keep a record of your conversations and meetings between you and your investment
adviser. Con artists operate in an atmosphere of trust that persuades people
there is no need to keep careful records. But donít be fooled! Be sure to jot
down the date, time, and place, as well. By keeping careful notes, you wonít
have to rely upon your memory if your adviser tells you something down the road
that just doesnít seem right. If a lawsuit or dispute does occur, careful notes
will set the record straight. Buyer Beware!
Whether due to a self-directed retirement plan, an inheritance, saving for a
childís education, or other reasons, today, more Americans than ever before find
themselves in charge of their financial investments. Handling those investments
are some of the most important decisions anyone can make. Although the vast
majority of financial advisers are trustworthy, be on the look-out for those
that are not. Being an investor requires education and attentiveness. Start
asking questions before itís too late.
Call your state securities agency. In Georgia, call (888) 733-7427 or (404)
656-3920. Contact the North American Securities Administrators Association in
Washington, D.C. at (202) 737-0900.