Ponzi Schemes and Investment Fraud:A Year Later<br />Presented by: Craig D. Stein<br />205 Worth Avenue, Suite 203<br />Pa...
We Will Discuss Two Types of Frauds<br />Affinity Fraud<br />General Brokerage / Investment Fraud<br />
Affinity Fraud / Ponzi Schemes<br />A. What is Affinity Fraud / How does it work?<br />Nature has ingrained:<br />
Affinity Fraud / Ponzi Schemes<br />A. What is Affinity Fraud / How does it work?<br />Political / Economic<br />Social / ...
Affinity Fraud / Ponzi Schemes<br />A. What is Affinity Fraud / How does it work?<br />Those you trust the most can do the...
Affinity Fraud / Ponzi Schemes<br />B. Affinity Fraud in the Past: “Jack and the Beanstalk”<br />
Affinity Fraud / Ponzi Schemes<br />C. Affinity Fraud in the Present:On Guard, But What do You Look For?<br />
Affinity Fraud / Ponzi Schemes<br />C. Affinity Fraud in the Present:On Guard, But What do You Look For?<br />Private Rath...
Affinity Fraud / Ponzi Schemes<br />C. Affinity Fraud in the Present:On Guard, But What do You Look For?<br />Continuous S...
Affinity Fraud / Ponzi Schemes<br />C. Affinity Fraud in the Present:On Guard, But What do You Look For?<br />Seeking out ...
Affinity Fraud / Ponzi Schemes<br />If It’s Too Good to Be True, It Probably Is:<br />
Affinity Fraud / Ponzi Schemes<br />If It’s Too Good to Be True, It Probably Is:<br />It is Subjective Like Other Platitud...
Affinity Fraud / Ponzi Schemes<br />If It’s Too Good to Be True, It Probably Is:<br />People Seek What is Too Good to Be T...
Affinity Fraud / Ponzi Schemes<br />If It’s Too Good to Be True, It Probably Is:<br />The More Financially “Successful” in...
Economic & Financial Industry Fraud & Negligence<br />A. In the Past: They are regulated, So Why Do I Have to Do Anything?...
Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />??<br />
Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />Just Because...
Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />Insidious: B...
Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />Often Hidden...
Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />These often ...
These Occur in Brokerage Accounts, with Investment Advisors and Even in Trust Accounts<br />Sale and Recommendation of Uns...
Diversification and Over-Concentration<br />Individual Stocks<br />Individual Sectors<br />Types of Investments (Equities,...
Churning<br />Excessive Trading<br />Who Controls Account<br />Looper Formula<br />
Unauthorized Trades<br />Discretion Authority<br />Time and Price<br />
Misrepresentation and Omissions<br />Why Would Broker Make Misrepresentations?<br /><ul><li>Commissions
Reliance Upon the Information Provided by the Brokerage Firm (ARS, LPS)
Belief in Investment - Projection</li></li></ul><li>Sharing Profits or Selling Away<br />
Government / Regulation<br />A. In the Past: Act Upon What They Know - Reactive<br />Government Issued Blinders<br />
Government / Regulation<br />A. In the Present: Despite Good Intentions,Still Act Upon What They Know - Reactive<br />Stil...
Government / Regulation<br />B. In the Present: Still Act Upon What They Know - Reactive<br />Increase Scrutiny Upon Those...
If You Are Concerned About an Affinity Fraud…<br />A. Seek Advice of Another Independent and Competent Investment Professi...
If You Are Concerned About an Affinity Fraud…<br />B. Refer to Industry Regulators – Tell Them What They Do Not Know (SEC,...
Closing Remarks<br />A. Each of You are Individuals With Different Investment Objectives and Risk Tolerances<br />
Closing Remarks<br />B. Ask Your Financial Advisors; And Just As Important: LISTEN to Their Answers<br />Why is This Inves...
Closing Remarks<br />B. Ask Your Financial Advisors; And Just As Important: LISTEN to Their Answers<br />Are You Recommend...
Closing Remarks<br />B. Ask Your Financial Advisors; And Just As Important: LISTEN to Their Answers<br />Carefully Review ...
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Ponzi Schemes and Investment Fraud: A Year Later

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Presentation to the Palm Beach Chamber of Commerce on November 5th 2009 regarding spotting financial fraud and ponzi schemes in investment accounts by securities attorneys.

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Ponzi Schemes and Investment Fraud: A Year Later

  1. 1. Ponzi Schemes and Investment Fraud:A Year Later<br />Presented by: Craig D. Stein<br />205 Worth Avenue, Suite 203<br />Palm Beach, FL 33480<br />Tel.: (561) 659-8802<br />
  2. 2. We Will Discuss Two Types of Frauds<br />Affinity Fraud<br />General Brokerage / Investment Fraud<br />
  3. 3. Affinity Fraud / Ponzi Schemes<br />A. What is Affinity Fraud / How does it work?<br />Nature has ingrained:<br />
  4. 4. Affinity Fraud / Ponzi Schemes<br />A. What is Affinity Fraud / How does it work?<br />Political / Economic<br />Social / Achievement<br />Interests<br />Religion<br />
  5. 5. Affinity Fraud / Ponzi Schemes<br />A. What is Affinity Fraud / How does it work?<br />Those you trust the most can do the most damage<br />
  6. 6. Affinity Fraud / Ponzi Schemes<br />B. Affinity Fraud in the Past: “Jack and the Beanstalk”<br />
  7. 7. Affinity Fraud / Ponzi Schemes<br />C. Affinity Fraud in the Present:On Guard, But What do You Look For?<br />
  8. 8. Affinity Fraud / Ponzi Schemes<br />C. Affinity Fraud in the Present:On Guard, But What do You Look For?<br />Private Rather than Public Investment<br />Unusual or Complicated-Sounding Investments<br />Promise and History of High Returns<br />Short Term for High Returns<br />
  9. 9. Affinity Fraud / Ponzi Schemes<br />C. Affinity Fraud in the Present:On Guard, But What do You Look For?<br />Continuous Stream of Returns (Despite Market Volatility)<br />Open Ended:<br />Opportunity for Continued Reinvestment<br />Open to New Investors Even if it does not Appear So.<br />
  10. 10. Affinity Fraud / Ponzi Schemes<br />C. Affinity Fraud in the Present:On Guard, But What do You Look For?<br />Seeking out Referrals<br />Little or No Oversight<br />Where are Funds Directed?<br />Paper Statement from independent 3rd Party<br />You Should Not be Made to Feel Uncomfortable to Question the Investment <br />
  11. 11. Affinity Fraud / Ponzi Schemes<br />If It’s Too Good to Be True, It Probably Is:<br />
  12. 12. Affinity Fraud / Ponzi Schemes<br />If It’s Too Good to Be True, It Probably Is:<br />It is Subjective Like Other Platitudes – People Do Not Follow:<br />Don’t Judge a Book by Its Cover<br />An Apple a Day Keeps the Doctor Away<br />
  13. 13. Affinity Fraud / Ponzi Schemes<br />If It’s Too Good to Be True, It Probably Is:<br />People Seek What is Too Good to Be True<br />
  14. 14. Affinity Fraud / Ponzi Schemes<br />If It’s Too Good to Be True, It Probably Is:<br />The More Financially “Successful” in Society have Already Achieved what’s “too good to be true,” usually by taking risks.<br />Seek guidance from 3rd Party to determine if an investment is “too good to be true”<br />
  15. 15. Economic & Financial Industry Fraud & Negligence<br />A. In the Past: They are regulated, So Why Do I Have to Do Anything?<br />
  16. 16. Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />??<br />
  17. 17. Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />Just Because Your Investments Lost Money Does Not Mean that Anyone Acted Inappropriately<br />Also, the Inverse – Just Because There Are Profits in Your Account, Does Not Mean You Are Suitably Invested<br />
  18. 18. Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />Insidious: Because they may Only Partially Dilute or Reduce Your Investments <br />
  19. 19. Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />Often Hidden by Market Appreciation and Excused by Market Depreciation<br />
  20. 20. Economic & Financial Industry Fraud & Negligence<br />B. In the Present: <br />Tell Me What to Look For!<br />These often Occur in Brokerage Accounts, even with Investment Advisors and Even in Trust Accounts<br />
  21. 21. These Occur in Brokerage Accounts, with Investment Advisors and Even in Trust Accounts<br />Sale and Recommendation of Unsuitable Investments<br />Client Objectives<br />Risk Tolerances<br />Types of Investments<br />Sophistication Does Not = Wealth<br />
  22. 22. Diversification and Over-Concentration<br />Individual Stocks<br />Individual Sectors<br />Types of Investments (Equities, Debt)<br />Hedging<br />
  23. 23. Churning<br />Excessive Trading<br />Who Controls Account<br />Looper Formula<br />
  24. 24. Unauthorized Trades<br />Discretion Authority<br />Time and Price<br />
  25. 25. Misrepresentation and Omissions<br />Why Would Broker Make Misrepresentations?<br /><ul><li>Commissions
  26. 26. Reliance Upon the Information Provided by the Brokerage Firm (ARS, LPS)
  27. 27. Belief in Investment - Projection</li></li></ul><li>Sharing Profits or Selling Away<br />
  28. 28. Government / Regulation<br />A. In the Past: Act Upon What They Know - Reactive<br />Government Issued Blinders<br />
  29. 29. Government / Regulation<br />A. In the Present: Despite Good Intentions,Still Act Upon What They Know - Reactive<br />Still Using Government Issued Blinders<br />
  30. 30. Government / Regulation<br />B. In the Present: Still Act Upon What They Know - Reactive<br />Increase Scrutiny Upon Those We Already Regulate<br />Review Old Case Files<br />They Still Cannot Know What They Do Not Know <br />
  31. 31. If You Are Concerned About an Affinity Fraud…<br />A. Seek Advice of Another Independent and Competent Investment Professional<br />
  32. 32. If You Are Concerned About an Affinity Fraud…<br />B. Refer to Industry Regulators – Tell Them What They Do Not Know (SEC, FINRA, State, etc.)<br />
  33. 33. Closing Remarks<br />A. Each of You are Individuals With Different Investment Objectives and Risk Tolerances<br />
  34. 34. Closing Remarks<br />B. Ask Your Financial Advisors; And Just As Important: LISTEN to Their Answers<br />Why is This Investment Suitable for Me?<br />How Much Can I Lose?<br />Am I Adequately Diversified?<br />
  35. 35. Closing Remarks<br />B. Ask Your Financial Advisors; And Just As Important: LISTEN to Their Answers<br />Are You Recommending This For Other / All of Your Clients?<br />What is Your Understanding of My Objectives and Risk Tolerances?<br />
  36. 36. Closing Remarks<br />B. Ask Your Financial Advisors; And Just As Important: LISTEN to Their Answers<br />Carefully Review your Opening Account Documentation. Do not just sign a stack of documents.<br />Read and Understand Your Account Statements: Ask 1) Broker, 2) Branch Manager, 3) Different Advisor<br />
  37. 37. Closing Remarks<br />C. With Financial Fraud, It is ALWAYS a Year Later<br />

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