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Ponzi Schemes and Investment Fraud: A Year Later
 

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.

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 Ponzi Schemes and Investment Fraud: A Year Later Presentation Transcript

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