Investment Fraud

Is Your Broker Sending You Texts or Emails from a Personal Account?

July 10, 2022 | Bryan Forman

Stockbrokers and investment advisors are trusted financial professionals. However, as they say, there is a bad apple in every barrel. And if you’ve been watching the news over recent months, the finance industry certainly has its share of bad apples when it comes to investment and securities fraud. But how can you tell if your broker is one of them? What may be some warning signs?

Brokers who engage in fraud or other types of illegal activity with client accounts need to shelter their communications with clients from the firm. One warning sign that a broker may be engaging in investment fraud is that the broker communicates with you through their personal email account about your investments or other potential investments, and not through an email account that is supervised by their employer

In most instances, brokers are required to use their email associated with the firm. Similarly, many firms prohibit brokers from texting with their clients, as it can be more difficult for a firm to police those private text communications. Communications with customers are also frequently reviewed by FINRA and other regulators. Thus, for brokers interested in selling products to clients outside of the firm’s offerings (selling away) or, even worse, trying to commit fraud against a client, using a work email only risks the broker’s misconduct is discovered by their firm.

Ex-Broker for UBS Alleged to Have Bilked Investors for Over $17 Million

May 18, 2022 | Bryan Forman

Stockbrokers and financial advisors occupy a place of trust. And, in most cases, a client’s trust in their financial advisor is well-placed. However, perhaps more often than most people realize, stockbrokers and financial advisors engage in illegal conduct specifically intended to enrich themselves at their clients’ expense.

This is exactly what is alleged to have occurred at UBS Wealth Management USA. According to a recent report, one of the firm’s former brokers in Waco, Texas, stole more than $17 million from customers over a period of more than 25 years. Evidently, the broker was able to “fraudulently convince” more than 20 clients to invest in a “sham” investment that he and a friend from college created. To induce clients to make this investment—which was not included among UBS’s offered products—the broker promised them between 4% and 8% interest, which would compound quarterly. And to keep the fraud going, he and his partner would send out fake account statements purporting to show that the accounts were increasing in value, as promised.

However, in September 2021, the fraudulent investment scheme started to unravel. At this point, The broker left UBS and began working for another investment firm. There are allegations that he continued to push the same fraudulent investment at his new firm.

Beware of Financial Fraud During Troubled Times–Ed Martin, Sage Investigations, LLC

March 26, 2020 | Bryan Forman

From Bryan Forman, Forman Law Firm, P. C.–In an effort to provide our readers with unique perspective of other professionals in the world of investments and securities regulation, arbitration, and litigation, I will occasionally invite friends, colleagues, and other experts to publish a blog piece from their unique perspective. If you like what they have to say, please say so and forward! Thanks for reading.

In this Guest Blog Piece, we hear from Edmond (Ed) Martin of Sage Investigations, LLC in Austin, Texas. Ed brings some unique experience and perspective to “Ponzi Schemes” a topic that has been around for a while and one on which we have often posted (see, “Ponzi Schemes Recommended By Stockbroker—How Can Firms Miss Them”), but one that is likely to experience a resurgence at the end of the recent bull market and the recession possibly brought on as with the Coronavirus Correction as more and more schemes are revealed as the proverbial house-of-cards comes tumbling down. Ed is a Certified Fraud Investigator, and gained substantial experience working as a Special Agent for the U. S. Treasury and Internal Revenue Service, Department of Justice, Texas State Securities Board, and other government agency types that you never really want to hear from unannounced–you would always rather call them as a victim of a scam. Ed has investigated all sorts of financial fraud, with a particular emphasis on Ponzi Schemes, and has told his stories on a number of television programs. See his CV here. We invite him here to share his perspective on two of the more notorious Ponzi schemes—Madoff and Russell Erxleben, and to highlight a few of the early warning signs for investors.

Beware of Financial Fraud During Troubled Times.

Texas Securities Act– The Statutory Basis for a $2.8 Million Arbitration Award On a $1.6 Million Investment.

March 11, 2020 | Bryan Forman

Austin, Texas Investor Wins $ 2.8 Million in Arbitration on Claims Under The Texas Securities Act

Investors in Private Offerings in Texas Have Substantial Tools At Their Disposal Through the Texas Securities Act (TSA).

In February of 2018, we posted a piece about how the Texas Securities Act was a “Powerful Tool For Victims of Oil and Gas Fraud” and we discussed how the TSA might apply to oil and gas investments, as we were seeing a significant number of investors’ inquiries about their investments in private oil and gas deals. As we noted, the TSA considers “any interest in or under an oil, gas or mining lease” to be a security. It is true that the TSA is a powerful tool for oil and gas investors that have been lied to about a deal, but the TSA is not limited to just oil and gas deals, but is applicable to the offer or sale of any security or investment contract. In this post, we highlight one of the firm’s recent awards where our client received all of his investment back, plus interest, costs, and a substantial award for his attorneys’ fees. The investment was not in an oil and gas deal, but was a somewhat typical investment in a start-up venture.

Financial Exploitation of Elders–What You Need To Know.

March 11, 2020 | Bryan Forman

Financial Exploitation of Elders – What You Need to Know

Due to age and the impairments that accompany it, our elderly population is, unfortunately, at a high risk of being taken advantage of financially. Elderly investors are vulnerable to financial exploitation and investment fraud due to a general desire to trust their financial professional, and the difficulty of keeping abreast of the ever-changing financial, retirement, annuity and insurance products marketed by Wall Street.

By the year 2030, all baby boomers will be over the age of 65. By 2035, the amount of people over 65 will be greater than those under the age of 18 for the first time in history. Naturally, a substantial amount of wealth and retirement savings will be found in this demographic. However, close to 20 percent of people over the age of 65 have some form of cognitive impairment. For those over 85, more than half have Alzheimer’s disease of some other form of dementia. The aging of our investor class presents inherent opportunities for the unscrupulous promoter of unsuitable investments, or those intent on defrauding others.

The Texas Securities Act–A Powerful Tool For Victims of Oil & Gas Fraud

February 4, 2018 | Bryan Forman

The Texas Securities Act , when applicable, is an extremely powerful tool for any investor seeking to recover an investment and other damages when they have been a victim of fraud or when the Texas Securities Act (TSA) has been technically violated, and this is particularly true when an investor invests in a private oil and gas deal that may not be compliant with the TSA or when the deal is misrepresented, or perhaps an outright scam. Oil and gas scams are, in fact, a staple of the enforcement actions brought by the Texas State Securities Board, and even though the Texas State Securities Board often shuts down the scams and the scammers, investors don’t always get compensated for their losses.

With the stock market reaching recent all time highs in late 2017 and going into 2018, private investment will predictably increase, and in Texas, a lot of investment dollars find their way into oil and gas drilling programs and other investments tied to our so-called “black gold.” One recent Houston Chronicle article made a good case of why we will see more and more money flowing into the oil and gas and drilling sectors in Texas. In short, with the price per barrel up from lows of last year, and with the Texas economy booming, it is reasonable to predict that there will be much more drilling activity, and investment into drilling activity. This usually translates to more private investment opportunities for individual investors in the Texas oil and gas sector, and this predictably will attract promoters and other scam artists hoping to exploit gullible and unsophisticated investors hoping to take part in the energized energy sector. And, surprisingly, it is still common for promoters of oil and gas deals to abscond with investors’ dollars.

Investments in oil and gas can come in many shapes and sizes. Investors can, of course, invest in a variety of publicly traded securities, including mutual funds, ETFs, Master Limited Partnerships, and specific companies (e.g. Exxon Mobile, Royal Dutch, and many others who are headquartered in Texas) whose share value is tied to the oil and gas industry. Investing in a public traded vehicle generally eliminates the opportunity for most registration fraud, IF you are investing through a registered broker that makes a suitable recommendation in light of your investment objectives, risk tolerances, sophistication, and financial condition, but when you are investing in a private investment, the potential of securities fraud may be increased.

Jason Anderson–Unsuitable Trading In Beaumont Equals Suspension In Texas—No, Registration

January 30, 2018 | Bryan Forman

Today, the Texas State Securities Board (TSSB) announced in a Disciplinary Order the suspension of Jason Anderson, a broker from Beaumont, Texas formerly working in the last two years with each of LPL, Kovack Securities, IFS Securities, and since March of 2017, was seeking registration as an investment adviser with IFS Advisory, LLC (later withdrawn), and then went on to seek registration as an investment adviser with Financial Management Services of America, LLC. Last year, Mr. Anderson was “indefinitely” suspended by FINRA for failing to comply with an arbitration award, pay a settlement, and/or failing to tell FINRA about the status of that award. Mr. Anderson has been very busy—-why? Some of the answers may be found in Mr. Anderson’s BrokerCheck, which reveals a rather concerning string of customer complaints and other problems. So, is Mr. Anderson suspended? Yes as a FINRA broker, and yes in the State of Texas, just not for long.

Well, while Mr. Anderson was with LPL between 2007 and February 2016, and perhaps while at the subsequent firms, Mr. Anderson was recommending to many of his clients an active trading program pursuant to a technical analysis. The Texas State Securities Board called the trading program the “Equity Strategy.” Similarly, there have been a number of customer complaints, and even a lawsuit filed against Mr. Anderson for his practices with his customers.

Mr. Anderson’s, and hence LPL’s, Equity Strategy involved actively trading stocks based apparently on Mr. Anderson’s belief in his prescient technical analysis. The Texas State Securities Board stated that Mr. Anderson “did not consider the trading costs, which included commissions…or the impact that such costs would have on the rate of return the Equity Strategy would need to earn to generate a positive return for a client.” The TSSB noted that for one client, the costs were 30%, meaning that in order for the client to breakeven, the Equity Strategy would have to earn 30%–no small feat for an investor with a moderate risk tolerance! Not surprisingly, the TSSB concluded that Mr. Anderson did not have a reasonable basis to believe that the Equity Strategy was suitable for his clients because of his disregard of the trading costs (his own commissions), and thus such practice was deemed by the TSSB to be “inequitable practices in the sale of securities” and it suspended Mr. Anderson’s registration. Hmmm…

“A Recovery Checklist For Victims of Investment Fraud”

June 26, 2017 | Bryan Forman

This week FINRA published a Recovery Checklist for Victims of Investment Fraud and at the risk of being called sensitive, it seems the Checklist seemed to omit, at least on its face, that hiring an attorney may be the most direct route to seeking any compensation that may be due from being a victim of a financial crime or a victim of investment fraud. Granted, if you click through to the embedded links, you will find another page published by FINRA titled “Legitimate Avenues for Recovering Investment Losses.” Therein you will find FINRA’s suggestion that “…You may want to hire an attorney to represent you during the arbitration or mediation proceedings to provide direction and advice.” I guess it is nice to be considered a “legitimate” avenue by FINRA, as any suggestion of illegitimacy would not sound quite as nice.

But back to the “Checklist.” FINRA provided a number of resources to report the crime, and victims of investment fraud and financial crimes should report these crimes to all appropriate agencies, as those agencies represent the only real process that can (whether they will is a different issue) bring criminal or regulatory charges against the perpetrator. However, it is in my experience rare that the authorities responsible for enforcing the criminal and regulatory statutes will recover the victim’s damages, although it certainly happens from time to time. That is not their real responsibility–they want to enforce the criminal laws and regulations and put deserving criminals behind bars or revoke licenses. Yes, recovery will sometimes be the product of criminal enforcement, but hiring someone that has no purpose other than representing the victim in seeking the appropriate recovery is wise.

I am glad FINRA acknowledges that the damage done by investment fraud not only includes the damages from financial loss, but also includes “…at least one severe emotional consequence—including stress, anxiety, insomnia, and depression.” These damages are real, and should be recoverable in arbitration, right? Well, FINRA knows that it is not easy to recover from investment fraud, and states so plainly. FINRA states, “While full financial recovery may be difficult to achieve…” and again states “It can be difficult to recover assets lost to fraud or other scenarios in which an investor has experienced a problem with an investment. But there are legitimate ways to attempt recovery. In most cases, you can do so on your own—at little or no cost.” Alas, is this a comment on the fairness/difficulty in recovering legitimate damages in its own arbitration forum? Perhaps, but don’t expect FINRA to connect these dots. But given this admitted “difficulty”, why does FINRA seemingly encourage victims of investment fraud to go it alone? FINRA is certainly aware of what can happen to the investor/claimant/victim proceeding on their own against veteran Wall Street attorneys in its FINRA arbitration forum—something akin to throwing raw meat into a crowded lions’ den comes to mind. Granted, experienced FINRA arbitrators will recognize a meritorious claim before them, but when it comes to recovering money from investment fraud, don’t go it alone!