While at times the rigorous regulations imposed upon firms can seem burdensome, they exist for a reason - to help prevent violations of federal securities law. Bad actors, who are a staple of the modern era, are emboldened by the potential for massive ill-gotten gains, and now have the tools and technologies at hand (combined with the power of the Internet) to take advantage of huge numbers of unsuspecting consumers.
In fact, that's exactly what happened June 19, 2018 when
the Securities and Exchange Commission (SEC) announced that it uncovered a massive Ponzi scheme being operated right here in the United States. You can follow the link to learn the details of the alleged scheme, but essentially, over $100 million dollars was stolen from a variety of retiree investors and used to both prop up the scheme and line the pockets of the men allegedly involved.
How This Particular Ponzi Scheme Defrauded Investors
According to the allegations, the five (5) men involved - all of whom were in differing jurisdictions - targeted retiring financial professional from investment advisers and broker-dealers, buying the retiring professional's client lists (who, in these cases, were themselves mostly retirees) and selling those clients securities in issuers controlled by the schemers, that were shell companies engaged in no legitimate business.
Like your typical Ponzi scheme, the alleged masterminds of the scheme transferred funds from one shell company to another (and to their own pockets in between) in order to create the illusion that each of the three companies were generating profit (when, in fact, they generated nothing).
There were, however, warning signs - investors were allegedly promised double-digit returns and guaranteed dividends, which creates "red flags" necessitating additional due diligence. But one must remember that aging investors, like the retirees targeted in this scheme, are not always able to immediately identify potential fraud.
Fortunately, as fiduciaries, financial professionals are in a unique position to help protect aging investors by educating them on red flags to be aware of that are indicative of such schemes. They also are able to proactively take steps to protect senior investors by reaching out to trusted contacts when signs of aging issues, like diminished capacity or elder abuse, appear.
Educate Your Clients on the Dangers of Fraud
When this scheme was unveiled, the SEC proactively took steps to help protect investors. They were able to secure an asset freeze and TRO, and encouraged investors to both research the background of their investment professional and provided resources of what investors to do that fall victim to fraud.
The protection of aging investors is high on the list of exam priorities for 2018, and financial professionals to take steps to evaluate means through which they can further protect senior investors. As clients age, they may become the victims of mental incapacity (e.g., showing signs of dementia or Alzheimer's disease) which can lead that individual to be a prime target for financial abuse. There are several steps your firm can take to protect its clients and keep them from becoming victims of elder abuse, including Ponzi schemes and other fraudulent actions. Click here for more information on what your firm can do to protect aging investors and ensure that your clients are protected when they can no longer protect themselves.
