Volume 4 - Issue 9

The SEC has moved to halt an alleged real estate fraud perpetrated by two Michigan men. The advisors allegedly raised more than $50 million from at least 440 investors by offering them membership interests in a real estate fund paying annual returns of 8 to 12 percent. However, less than half of the funds raised were actually spent acquiring real estate. Instead the men spent $7 million on luxury homes, exotic vacations, gambling debts, and a Ferrari.  In the meantime, they kept investors at bay by using new funds to pay off earlier investors. After uncovering the fraud, the SEC obtained a court order to stop the scheme and freeze the assets of all individuals and business entities involved. 

An Ohio broker has been thrown out of securities industry for stealing $90,000 from two sisters who had inherited the money from an aunt. The aunt, who had been the broker’s client, died in 2006, leaving money to her two nieces. The broker advised the sisters to invest the proceeds with him. However, instead of having them make out checks payable to his brokerage firm, he had them make them payable to an entity he controlled. The broker never opened the account and instead used the money for personal purposes, covering his tracks by creating a false account number and account statements.
 
A Texas oil and gas promoter was sentenced to 99 years in prison for stealing $417,000 from investors in various oil and gas exploration projects. Evidenced presented at trial showed that he raised money from dozens of investors who paid him as little as $1,000 and as much as $85,000 to gain a share of the projects. Instead of putting the money into the projects, the promoter lived off the funds for four years. He also sold interests in projects he didn’t own. In addition, the promoter was indicted for securities fraud for failing to tell investors of legal problems he had at a precious company.

Volume 4 - Issue 8

A Washington “faith-based financial advisor” has been sentenced to 18 years in prison for affinity fraud. He preyed on members of Christian churches in several Washington counties, as well as on consumers in four other states. During his scam spree, the advisor used more than a dozen aliases, conducting investment seminars and amassing client retirement assets without a license. Through his social and church-based dealings, he won people’s trust, and then spent their life’s savings on a lavish personal lifestyle.

A California life insurance agent was arrested for bilking several elderly retirees out of at least $350,000 in retirement savings and then spending the money on her gambling habit. The agent sold annuities to her clients, then steered them into fraudulent real estate investments. She promised returns of between 10 and 20 percent, making some initial payments, then promising to return the funds later. In exchange for fun and games at a California casino, the agent is now facing 92 criminal charges, including grand theft, embezzlement, and burglary.

A New Jersey advisor was sentenced to 30 years in prison for scamming investors out of some $6 million in a Ponzi-type scheme. He had pleaded guilty to mail fraud and money laundering in June 2008. According to prosecutors, the advisor falsely claimed to have defense contracts in Iraq with a New Jersey trucking firm. Based on this relationship, he promised extraordinary returns, but was really paying off earlier investors with later investor funds. According to published reports, the advisor became a fugitive early this year, but was later arrested in Florida.

Volume 4 - Issue 7

FINRA has thrown a wire-house broker out of the securities business for victimizing a 64-year-old nun. According to FINRA, the nun received a $531,000 inheritance from her mother, who also was a client of the broker. After her mother died, the nun transferred the funds in her mother’s mutual fund account to a new account under her own name. Because of her vow of poverty, she planned to donate the money to her religious order. The broker persuaded the nun to withdraw $125,000 to invest elsewhere. When the nun received the proceeds, the broker instructed her to sign it and return it to him. Instead of investing the money, the broker deposited it into his personal bank account and used it for his own benefit. For the reminder of the inheritance, the broker got the nun to sign a letter authorizing him to deposit $406,000 into an outside tax-exempt fund. He then used the money to fund a sports management company.

A California insurance agent was sentenced to three years in state prison for two counts of felony grant theft against elder clients. The agent initially invested his clients’ funds into legitimate annuity accounts. However, he then persuaded them to invest the funds in another financial services company that promised higher returns. But he failed to disclose that he was the owner of the firm and that their money would not be deposited in a legitimate investment. Five senior clients incurred losses of more than $300,000 as a result of the agent’s scam.

The SEC charged a New York investment advisor with orchestrating a scheme in which he stole more than $6 million in investor funds for his own personal use. According to the SEC, the advisor in some cases victimized clients who were terminally ill or mentally impaired. The advisor’s scheme involved selling securities in client accounts and then illegally funneling the money to a bank account he secretly controlled. The advisor then spent the money on a multi-million dollar home, cars, and other luxury items. To cover his tracks, he provided his broker-dealer with fake client authorizations and his clients with account statements showing inflated balances.  In one case, the advisor misappropriated roughly $430,000 from a client who was terminally ill. After the client died, the advisor went on to steal $85,000 from the widow.

Volume 4 - Issue 6

A Santa Barbara, California insurance agent was charged with one felony count of grand theft for allegedly twisting and churning annuities.  If convicted, the agent could face up to five years in prison. After selling his senior clients an annuity, he would allegedly wait until the policy was at least one year old so he would retain a commission. Then he would transfer the policies to another company.  The transfer would result in a sizeable commission, while the policyholders faced surrender charges of more than 10% of the principal. According to the California insurance commissioner, the agent pocketed more than $1.3 million in commissions through this scam, while his clients suffered surrender penalties amounting to $1.9 million.

A former Cincinnati investment advisor pleaded guilty to mail fraud and tax evasion in connection with his scheme to defraud at least ten victims out of approximately $5 million. According to authorities, the advisor promised potential clients he would invest 98 percent of their funds in financial markets. Instead, he used most of it for personal living expenses, operation of his companies, and payments to earlier investors seeking to withdraw funds. In addition, the advisor used fraudulent account statements and transferred funds through multiple bank accounts in an effort to conceal income from the IRS.

A U.S. District Judge has ordered the head of two Connecticut-based hedge fund advisors to pay more than $62 million in fines within 15 days. According to an SEC complaint, the individual raised more than $1.1 billion from investors over several years by misrepresenting the nature of and returns on his investments. This caused investors to lose approximately $500 million. The judge’s order also gives the SEC 30 days to recommend a specific penalty the advisor should pay in addition to disgorging his ill-gotten gains.

Volume 4 - Issue 5

A state of Washington advisor is going to prison for six years for embezzling $300,000 from disabled clients’retirement funds. He apparently served as an “organizational representative payee” of Social Security benefits for over 750 Washington clients. Rather than attending to their medical, food, shelter and clothing needs, he spent their Social Security disability benefits on luxury cars, vacations to Jamaica’s Club Hedonism, Adult Friend Finder services, and other personal items.

A former Ohio insurance agent pled guilty to mail fraud and tax evasion after he defrauded at least 10 clients out of nearly $5 million. Posing as an investment advisor, the man persuaded clients to invest their inheritances and insurance proceeds into his hedge fund. However, instead of investing the funds in the markets as promised, he used the money for personal expenses. He also admitted using funds from new clients to pay off redemption requests from existing clients. Finally, the agent used phony account statements and transferred funds through multiple accounts in an attempt to hide income from the IRS.

A Massachusetts investment advisor has pled guilty to wire fraud in connection with a scheme to defraud two of his clients. The advisor admitted two counts of wire fraud, in which he defrauded two investment clients out of more than $750,000. The former registered representative for a subsidiary of a large mutual life insurer misappropriated more than $750,000 in client funds. He invested those funds, without the knowledge or consent of his two elderly victims, in an entity that turned out to be a massive Ponzi scheme. The advisor faces up to 30 years in prison, to be followed by five years of supervised release and a $1,000,000 fine on each charge.

Volume 4 - Issue 4

A pioneer of the fee-only financial planning movement has pleaded guilty to embezzling more than $3 million from her clients. The New Orleans-based planner promised returns of between 13% and 26% to prospects who invested in two companies, authorities said. In fact, the companies were just UPS store mailboxes. Using classic Ponzi techniques, the planner engaged in illegal wire transfers from her clients’ Charles Schwab custodial accounts to her personal accounts. Once in hand, the money was used for clothing, vacations, and rent payments. The advisor is now facing a maximum prison sentence of 20 years, a fine of $250,000, and three years of supervised release for each count against her.

A Miami Beach, Florida advisor was convicted by a Virginia jury of misappropriating as much as $126 million in client funds. The money was supposedly held in trust in a purported capital gains deferment program. Instead, it was used to support a lavish lifestyle, including the purchase of an aircraft, yacht, and other luxury items. The advisor also used the money for business operating expenses and commercial real estate investments.

A former California man was arrested in Hong Kong for an alleged investment scheme involving two hedge funds he ran. The advisor promised investors returns as high as 20% to 30% a year. Instead, he moved investor funds to offshore accounts and then misappropriated $5 million. The advisor closed out his accounts and fled to Hong Kong. But he was captured and is being extradited back to the U.S.

Volume 4 - Issue 3

A Connecticut insurance agent has pleaded guilty to embezzlement after plundering her employer’s checking account to pay for personal expenses. The agent is expected to receive three years in prison and five years of probation. The woman had only a 10th-grade education, but was hired by the agency owner when she was 18. With the owner’s mentoring, she became a licensed insurance agent. She repaid him by stealing $130,000 from the agency over a three-year period.

A Texas advisor was sentenced to 60 years in prison for defrauding state investors of at least $2.6 million. The advisor convinced clients to invest in bank credit instruments allegedly located in Nassau, Bahamas; Germany; and Switzerland. The advisor claimed he had access to so-called prime banks, which allowed him to purchase special financial instruments on behalf of investors. Under the scheme, the advisor promised returns of up to 30 percent per month. He met those obligations by paying early investors with money raised from new investors.

A Maryland insurance agent pleaded guilty to felony insurance fraud. He will be sentenced in April 2009 and required to pay $296,397 in restitution. The agent submitted false information to a health insurer in order to reduce the premiums charged to his clients. Then he collected an inflated amount from his clients, sending reduced premiums to the carrier and keeping the difference.

Volume 4 - Issue 2

A former California life insurance agent was arrested for allegedly stealing $100,000 from an
83-year-old client. He was charged with three felony counts, including theft, identity theft, and theft from an elder. The agent allegedly forged the client’s signature on annuity surrender documents. He also changed the mailing address of the annuity to his own residence and directed the insurance company to send the client’s money to him. State authorities said he deposited the money into his business account where he used it to buy personal items.

A California financial advisor was sentenced to 30 months in prison, three years of supervised release, and $2.8 million in restitution in connection with investment fraud. The advisor, who owned a tax and bookkeeping service, solicited client funds to invest in a fiber optics company. However, rather than investing the money, he used it to make personal investments in an Arizona housing development and penthouse. He further tried to conceal the misuse of investor money by depositing it numerous bank accounts in the names of corporate and partnership entities.

The Arizona Corporation Commission sanctioned a state couple and business partner for affinity fraud committed against members of three churches. The Commission ordered over $11 million in restitution and $250,000 in administrative penalties.  Through their affinity relationship with the churches, the business partners convinced at least 80 church members to buy stock, short-term bridge loans, and promissory notes in two companies, one of which was slated to become a publicly traded company. After investing, clients received phony account statements that showed their investments were increasing in value when in fact they were not. The partners funneled investor money into offshore accounts, using it for cars, jewelry, a luxury home, gambling debts, and a payment to a woman’s professional soccer team.

Volume 4 - Issue 1

A Georgia financial advisor and registered representative pleaded guilty to mail fraud in connection with a scheme that victimized more than 10 clients and resulted in losses of $4.6 million. The advisor apparently convinced clients to liquidate other investments in order to purchase annuities with higher rates of return. However, instead of investing the funds, he converted the money to his own personal use. The advisor faces a potential jail term of up to 20 years and a $250,000 fine.

A California insurance agent was convicted of receiving nearly $9,000 in advance commissions. The agent wrote phony applications for five people using information provided by a business associate. When the insurer supplied policies for the applicants, the agent failed to deliver them. However, he forged the victims’ signatures on receipts and returned them to the insurer. The policies ended up lapsing after two months for non-payment of premium. When the company contacted the victims, it learned they had no knowledge of the policies. The agent was sentenced to five years probation, 750 hours of community service, and restitution of $9,000.

A Kansas resident was sentenced to 24 months in prison for a series of violations of the state’s securities acts. The advisor first solicited $8,000 from a state resident for a real estate investment that ostensibly returned three times the original investment. Instead of investing the client’s money, the advisor kept the funds for her own personal use. Then she convinced other investors to give her $25,000 to invest in pallets of merchandise that would be sold on the street. Again, the advisor used the money instead of investing it. Finally, the advisor convinced a couple to invest $10,000 for foreign currency trading, promising a 10% to 15% monthly return. Rather than investing the money, she gave it to her husband.

Volume 3 - Issue 11

Two former business partners used a Ponzi scheme to defraud Oregon investors of roughly $500,000, using the proceeds to buy a Lexus and a Rose Garden Suite. The partners led investors to believe their money would be safely invested in a high-yield investment program. Instead, it was used for luxury purchases and for payments to maintain the scheme. One partner was sentenced to 19 months in the Oregon Department of Corrections and ordered to pay $310,000 in restitution to victims. The other was sentenced to three years of supervised probations and ordered to pay $200,000 in restitution.

An Indiana mortgage broker received an 11-year sentence on 14 felony counts of mortgage fraud. The broker solicited business by representing herself as a loan broker. However, she was not registered with the state as required by law. Authorities say she defrauded seven people out of nearly $50,000 and caused at least one couple to be evicted from their apartment due to financial hardship. The broker will serve four years of her sentence in prison and the remaining seven on probation.

An Illinois advisor has been convicted  for collecting more than $540,000 from five elderly couples for investments he never made. The advisor plead guilty to one count of financial exploitation of the elderly, one count of theft over $10,000, and one count of securities fraud. He was sentenced to eight years for the exploitation charge and five years each on the theft and securities fraud counts. These latest charges come on top of six prior charges for which he received a 10-year sentence. The advisor will serve all of his sentences concurrently.

Volume 3 - Issue 10

The Arizona Corporation Commission ordered a Lake Havasu couple who defrauded investors to pay restitution of nearly $720,000 and a penalty of $100,000. The couple raised over $1 million from at least 15 investors, most of whom were senior citizens with winter homes in Arizona. However, neither was registered to sell securities in the state. According to officials, the couple’s solicitation materials never stated how they’d invest client funds to generate the promised profits. Nor did the couple ask prospective clients about their risk profile. 

A Pennsylvania man was sentenced to 10 years in prison for stealing approximately $790,000 from clients of his investment firm, which offered specialized financial services for podiatrists. He was also ordered to pay the same amount in restitution to his victims and to surrender his New Jersey insurance license. The private wealth manager admitted he and his live-in business partner stole client funds and used them to buy a Pennsylvania home and to cover their personal expenses. He also admitted providing clients with false monthly statements and dividend checks.

A Utah man was sentenced to one year in jail for stealing more than $237,000 from his aging and blind mother who had entrusted him to help manage her finances. The man pleaded guilty to one third-degree felony count of abuse, neglect, or exploitation of a vulnerable adult and three third-degree felony counts of theft by deception. The man’s crimes began over 10 years ago when he began forging letters to an insurance company to gain access to his mother’s $80,000 annuity account. When he began managing her finances in 2002, he used her checking account for his own expenses. Several years later, he convinced his mother to obtain a reverse mortgage, but spent most of the mortgage proceeds on himself. He also used his mother’s tax-refund checks and even pawned some of her jewelry.

Volume 3 - Issue 9

A North Carolina licensed insurance agent has been sent to prison for 87 months for defrauding his elderly clients of over $2 million and then losing most of the money in bungled day trades. According to the U.S. Department of Justice, the agent convinced clients to invest their annuity proceeds with an outside company, promising guaranteed rates of return from private mortgage investments. In reality, the agent controlled the company. After receiving client funds, he engaged in money laundering before losing the money through day trading.

The New Jersey Bureau of Securities has filed suit against three men who allegedly conned investors, including members of a state church, out of an estimated $500,000. The men promised their investments would fund charitable purposes, including the purchase of a new church building. In reality, they transferred the investors’ money between business and personal accounts they controlled and ultimately used the funds for personal expenses and purchases. Neither the men, nor their investments, were registered with the New Jersey Bureau of Securities.

A disbarred Texas lawyer has been sentenced to 20 years in prison and ordered to pay $3.2 million in restitution in connection with his conviction for securities fraud. The former lawyer operated an investment fund he marketed to senior citizens from a Houston office. The fund obtained more than $10 million from approximately 80 investors. According to the Texas Securities Commissioner, the former lawyer misrepresented the profitability of his fund and concealed misuse of prior investor funds as well as his prior disbarment. In addition to this year’s action, a 2007 civil court proceeding ordered the lawyer to pay about $4.7 million to investors.

Volume 3 - Issue 8

A New Jersey man was sentenced on charges he defrauded senior citizens out of nearly $2 million by claiming he would invest their annuity deposits when in fact he spent their money on luxury automobiles, gifts for exotic dancers, gambling, and personal expenses. The advisor was sentenced to 87 months incarceration and restitution on charges of mail and wire fraud and a violation of the Investment Advisers Act.

A Georgia stockbroker was sentenced Tuesday to five years in federal prison for defrauding her clients. She was also ordered to serve three years on supervised release and to pay restitution of almost $1.2 million. Federal authorities presented evidence at trial that the broker fraudulently transferred $679,670 from the accounts of nine clients. As part of the scheme, she forged her clients’ names on letters of authorization, causing funds to be transferred to accounts she controlled. She then used the stolen funds to benefit herself, family members or other clients.

A South Carolina financial planner was sentenced to 51 months in prison, followed by three years of supervised release, and ordered to pay a $50,000 fine on four counts of tax evasion and one count of making false statements in a bankruptcy petition.  Trial evidence revealed that the planner made more than $2 million in commissions for selling financial products such as insurance policies, annuities, and mutual funds. It also revealed that he did not file tax returns or pay any income taxes during any of the three years in question. In fact, the planner had not filed personal tax returns since 1995. However, he used bogus tax returns to attach to loan applications and other financial dealings. To help hide his income, the planner used the bank accounts of several entities that he controlled. He then signed and filed a bankruptcy petition claiming that his income was only approximately $17,000, when, in fact, it was approximately $800,000.

Volume 3 - Issue 7

A federal jury convicted six men in a $60-million tax scam that peddled phony trusts through a Chicago firm to nearly 700 wealth y clients. The advisors were convicted of diverting income from businesses into sham trusts, hiding millions of dollars of income and producing a $60-million
tax-revenue loss to the U.S. government. The May 2008 convictions join more than 30 other convictions relating to the so-called “abusive trust” scheme. The felons will be sentenced in August and September.

A Kentucky financial planner got 37 months in prison for conspiracy and tax fraud relating to an off-shore insurance fraud. The planner operated an insurance agency that conspired with an insurance company in the U.S. Virgin Islands to sell phony “loss of income” insurance. The “policies” were sold as a tax-deductible vehicle that would return nearly 85% of the premium paid through a supposedly non-taxable offshore loan or investment.

A California resident was sentenced to 14 years in prison for grand theft, forgery, tax evasion, and transacting insurance without a license. The convicted resident created a bogus insurance company that sold medical malpractice insurance to medical personnel through California and other states. The government said the individual operated the company without state certification, issued fraudulent documents, and failed to file tax returns. The “agent” used the millions of dollars generated to purchase fine art and 32 acres of prime California real estate.

Volume 3 - Issue 6

A Texas financial advisor was sentenced in April 2008 after pleading guilty to wire fraud. He raised $805,000 from investors through wire transfers, for oil and gas drilling projects that his firm did not own or control. He was sentenced to 33 months in federal prison and ordered to pay restitution of $805,000.

A Connecticut insurance agent had his license revoked for using clients’ assets without permission for his own business and personal gain. State regulators found evidence of forgery and conversion of client funds to the agent’s personal and business bank accounts. The funds were held from 4 to 10 months before being reinvested on behalf of the clients.

A California life insurance agent was convicted and sentenced on charges he defrauded an elderly couple of nearly $300,000. He was sentenced to serve a two-year prison term and pay $291,576 in restitution to the victims' estate, in addition to $5,000 in fines. California authorities determined that between June 1, 1994 and August 31, 2002, the agent became the trustee of his elderly client's estate.  He then took nearly $300,000 in client funds without the person’s knowledge or consent.