Skip to main content


Representing Individual, High Net Worth & Institutional Investors

Offices in Indiana and New York City


Home > Blog > Category Archives: Investor Education

Category Archives: Investor Education

Report on National Senior Investor Initiative Released by FINRA & SEC

Over the next 15 years more and more baby boomers will be turning 65, the SEC and FINRA issued a report this month to help broker-dealers evaluate, craft, or improve their policies and processes for investors as they prepare for and enter into retirement. The National Senior Investor Initiative report focuses on issues related to senior investors and regard to compliance with laws, rules, and regulations applicable to senior investors to be a high regulatory priority. Concerns that some broker-dealers may be recommending riskier and possibly unsuitable securities to senior investors looking for higher returns and may be failing to adequately disclose the terms and risks of the securities they recommend.

Susan Axelrod, FINRA Executive Vice President, Regulatory Operations, says, “With the dramatic increase in the population of our nation’s seniors, it is critical that securities regulators work collaboratively to make sure that senior investors are treated fairly. The culture of compliance at firms is key to ensuring that seniors receive suitable recommendations and proper disclosures of the risks, benefits, and costs of any investments they are purchasing.”


Just like an average person who ages, an older financial adviser is more likely to show signs of aging. Red flags that a financial adviser might be suffering from senior moments: forgetfulness, a tendency to repeat things, a disregard for following instructions. If you are concerned, bring attention to the branch manager or to compliance, or, if they don’t do anything, to the authority. An increasing problem that seems to go unreported most of the time, but in the next few decades be prepared to see these declining mental skills claims increase.

51 is the average age of financial advisers and 43 percent are older than 55, according to Cerulli Associates. Many are planning to retire in the next decade and it is a struggle to recruit young advisers to offset those retiring from the industry. The North American Securities Administrators Association are aware of the financial services industry’s continuing concerns regarding the aging of advisers and have begun addressing the issue with proposing a rule requiring state-registered investment advisers to have succession and business continuity plans in place.

SEC Issues Risk Alert on Alternative Investments

Alternative investments can be risky, illiquid, and complicated and, as witnessed in a growing number of cases in the past few years, cost investors thousands of dollars in financial losses.

Last week, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) took up the subject of alternative investments by issuing a Risk Alert on the due diligence processes that investment advisers use when they recommend or place clients’ assets in alternative investments such as hedge funds, private equity funds, or funds of private funds.

“Money continues to flow into alternative investments.  We thought it was important to assess advisers’ due diligence processes and to promote compliance with existing legal requirements, including the duty to ensure that such investments or recommendations are consistent with client objectives,” said OCIE Director Drew Bowden.

The alert, which can be read here, describes current industry trends and practices regarding advisers’ due diligence. In particular, the alert notes that advisers are:

*Seeking more information and data directly from the managers of alternative investments

*Using third parties to supplement and validate information provided by managers of alternative investments

*Performing additional quantitative analysis and risk assessment of alternative investments and their managers.

However, SEC staff observed certain deficiencies in several of the advisory firms examined, including:

*Omitting alternative investment due diligence policies and procedures from their annual reviews, even though these investments comprised a large portion of certain advisers’ investments on behalf of clients

*Providing potentially misleading information in marketing materials about the scope and depth of due diligence conducted

*Having due diligence practices that differed from those described in the advisers’ disclosures to clients.


Fraudulent Investment Clubs Among Latest Financial Scams

Despite warnings state and federal law enforcement and securities regulators, investment fraud schemes continue to grow across the country, damaging lives and producing thousands of dollars in financial losses for their unsuspecting victims.

One recent fraud scam involves so-called investment clubs.  In this case, the scam amounted to $36 million. One of the perpetrators, Christopher Jackson, 46, recently was convicted in a federal trial in Sacramento for his participation in the scheme known as Diversified Management Consultants, or DMC.

According to court documents, between 2003 and 2009, DMC purported to help people invest money in real estate development and save their homes from foreclosure. In reality, authorities said, DMC was an investment fraud scheme that defrauded at least 180 people out of approximately $36.9 million.

U.S. District Judge Troy L. Nunley ordered Jackson remanded into custody immediately after the jury’s verdict. Jackson is to be sentenced April 10.

Jackson’s accomplices, Michael Bolden; Victor Alvarado; Nicholo Arceo; Erica Arceo; and Garry Bradford – all of Sacramento – have pleaded guilty to charges of conspiracy, wire fraud and false statements. They are currently awaiting sentencing.

Court documents and evidence produced at the trial show that DMC was an umbrella for the various defendants’ investment clubs. The defendants induced people to invest their ordinary savings, tax-deferred retirement savings and proceeds of cash-out residential loan refinancing. They told investors that their money would be used to purchase property and buildings for a real estate venture. Instead, the victims’ money went to pay other investors’ fake returns on investments and to pay for the defendants’ personal expenses, including a luxury lifestyle, authorities contend.

As reported by the Sacramento Bee on Jan. 23, Jackson was the “closer” among the DMC participants. His investment club – Genesis Innovations – recruited approximately 80 investors and took in more than $10 million. Many of Jackson’s victims invested all of their retirement savings with him based on his promise of a high interest rate and very little risk. Out of the $10 million, Jackson invested no more than $2.5 million in developing real estate, authorities said.

The rest of the money was allegedly used by Jackson to pay false returns to other investors and to live in a way that Jackson himself compared to an entertainment or sports star. He used the Genesis Innovations account to drive a Lamborghini, a Rolls Royce, a BMW and a Land Rover. He also employed a personal chef and a bodyguard, who at times carried a metal briefcase in which Jackson carried cash.

In addition, Jackson took annual trips to Las Vegas, where he paid for an entourage of guests to join him at the finest hotels and restaurants, authorities said. He also spent more than $1 million on purchases, including jewelry and landscaping his house, with all the money coming out of the investment club account.

Is Inland American Going Liquid?

In 2012, one of the largest non-traded real estate investment trusts (REITs) – Inland American Real Estate – was the target of a Securities and Exchange (SEC) nonpublic, fact-finding investigation as part of an effort to determine whether it had violated certain federal securities laws. Now, Inland American could be in line for a merger or listing of its shares, according to a story reported last Friday in Investment News.

In a letter to shareholders, Inland American stated that, “In connection with our board’s review of an additional liquidity option for our stockholders, this letter serves as notice that we are suspending our current share repurchase program, which is available to stockholders in the event of death or for stockholders that have a ‘qualifying disability’ or are confined to a ‘long-term care facility…”

As reported in the Investment News story, Inland American has had its share of issues over the years, many of them tied to the 2008 financial crisis. Launched in 2005, Inland American was among a group of large non-traded REITs that suffered in the wake of fallen commercial real estate prices. Originally sold to investors by brokers at $10 per share, the REIT’s most recent estimated per share valuation at the end of December was $6.94 per share.

Stay tuned.

Galvin Goes After Former Stratton Oakmont Broker

Disgraced “Wolf of Wall Street” broker Jordan Belfort is no longer doing business in the securities industry, but some of his cohorts in crime continue to be on the radar of regulators.

As reported yesterday by Investment News, one of those brokers is Christopher Veale, who was charged Wednesday by Massachusetts Secretary of the Commonwealth William F. Galvin of engaging in abusive sales practices, churning a client’s account and using markups to conceal commissions in the account of an 81-year-old investor.

Regulators allege that the elderly Rhode Island investor put $873,622 into his account with Veale. He also was charged $319,818 in commissions and hidden fees. A colleague of Veale’s at Brookville Capital Partners LLC, Ali Habib Mayar, also is named in Galvin’s complaint.

The elderly client ultimately suffered out-of-pocket losses of almost $1.6 million as a result of the brokers’ alleged actions and Brookville Capital’s alleged failure to supervise their actions, the complaint says.

“[The] Senior Investor attempted to close his Brookville account twice, but both times was convinced to keep the account open. Specifically, Veale persuaded Senior Investor that he could turn the account around and promised Senior Investor that he would significantly increase profits, but that the only way Veale could make that happen was if Senior Investor put in another $200,000,” Galvin stated in the complaint.

The complaint seeks to revoke the registration of the two representatives and firm and permanently bar them from the securities industry in Massachusetts. Rhode Island also has filed a similar action against the two brokers and Brookville.

Veale infamously began his career in the securities industry in 1995 with the now-defunct Stratton Oakmont. Stratton Oakmont is credited with being one of the first ‘boiler room’ operations whose brokers aggressively cold called potential investors and pushed them to buy penny stocks that were manipulated by Stratton Oakmont.

Stratton Oakmont and its creator, Belfort, are now the subject of Hollywood in the movie, “The Wolf Wall Street.”

After Stratton Oakmont was put out of business by federal authorities, Veale went on to work with some 17 other broker/dealers, including the now-defunct John Thomas Financial.  That company closed its doors last year over fraud allegations. In December 2013, Anastasios “Tommy” Belesis, the founder of John Thomas Financial, agreed to be banned from the securities industry in a settlement with U.S. regulators who had accused him of defrauding investors in two hedge funds.

Veale currently works for Legend Securities, according to his BrokerCheck report with the Financial Industry Regulatory Authority (FINRA).

Enhanced FINRA BrokerCheck Web Site Released

The Financial Industry Regulatory Authority (FINRA) has unveiled a new and improved version of its BrokerCheck Web site that allows investors and other individuals to more quickly access and intuitively understand the professional background of investment professionals.

“Investors using BrokerCheck will encounter a more user-friendly interface that allows them to quickly find information that can help them decide if an investment professional is right for them,” said Derek Linden, FINRA Executive Vice President, Registration and Disclosure, in a statement.

The new changes let investors search both the BrokerCheck and Investment Adviser Public Disclosure (IAPD) record of any securities professional or firm directly from FINRA’s homepage.  BrokerCheck then presents the search results in a more user-friendly graphical timeline that details the industry professional’s employment status and history, industry registrations, and any reportable events such as customer disputes or disciplinary actions that may have occurred during his or her career.

FINRA also plans to make the new BrokerCheck widget available to third-party Web sites, allowing visitors to those sites direct access to securities professionals’ or firms’ BrokerCheck or IAPD reports without having to visit the FINRA or Securities and Exchange Commission (SEC) Web sites.

In 2012, members of the public used BrokerCheck to conduct 14.6 million reviews of broker or firm records.

Financial Fraud in America

Investment and financial fraud is a $50 billion a year crime – and one that can happen to the young, old, sophisticated investors and novices alike. A recent report from the FINRA Investor Education Foundation found that more than 8 in 10 respondents were solicited to participate in potentially fraudulent financial offers, with 11% of all respondents losing a significant amount of money after engaging in such deals.

Even though financial fraud and investment schemes are commonplace, many Americans don’t know the red flags of financial scams because they lack an understanding about the fundamentals of investing, such as realistic rates of return on their money. Older Americans are particularly vulnerable to financial fraud. According to the FINRA Foundation report, Americans age 65 and older are more likely to be targeted by fraudsters and more likely to lose money once targeted. Upon being solicited for fraud, older respondents were 34% more likely to lose money than respondents in their forties.

Additional highlights of the FINRA Foundation study include the following:

– Many Americans are vulnerable to fraudulent investment pitches promising unrealistic returns because they fail to realize what a reasonable return on an investment should be. For example, nearly half of respondents found a daily rate of return of more than 2% appealing. Claims of achieving “typical” returns of 110% per year were found attractive by 42% of respondents.

– 84% of respondents reported being solicited with at least one of the 11 types of potentially fraudulent offers.

– 67% said they had received an email from another country offering a large amount of money in exchange for an initial deposit or fee.

– 64% had been invited to an “educational” investment meeting that turned out to be a sales pitch.

– 18% had been asked to participate in an investment that offered a commission for referring other investors.

You can read FINRA’s entire report here.

Crowdfunding Goes to Main Street

Crowdfunding investing is about to be available to the average Joe – and that means the floodgates to a whole new set of potential risks could be opened wide, predict investor protection advocates.

The Securities and Exchange Commission (SEC) voted yesterday to propose rules that, for the first time, would allow entrepreneurs and start-up companies looking for investors to solicit over the Internet from the general public.

If adopted by the SEC, the proposal would be a major change in the way in which small U.S. companies are allowed to raise money in the private securities market. Currently, private companies can solicit only from accredited, sophisticated investors who have a net worth of at least $1 million or an annual income of more than $200,000.

The proposed investment crowdfunding rule changes this scenario, giving small businesses the green light to raise up to $1 million a year by soliciting unaccredited investors.

For those investors, the new proposal is a chance to get on the ground floor of the next big investment. At the same time, however, investment crowdfunding can be extremely risky, given the fact that most start-ups never see the light of day. A recent Wall Street Journal article reported that 3 out of 4 venture-backed start-ups fail.

In addition, critics of investment crowdfunding say it will unleash a myriad of new fraud schemes, particularly among unsophisticated investors.

The SEC’s crowdfunding proposal is in response to the Jumpstart Our Business Startups (JOBS) Act, which was signed into law by President Obama last April as a way to help spur small business growth by easing federal regulations.

Last year, the North American Securities Administrators Association (NASAA) issued an advisory for investors considering crowdfunding. Among other things, the report highlighted a number of crowdfunding concerns, including offers from disreputable persons and platforms seeking to prey on entrepreneurs unfamiliar with the JOBS Act’s requirements.

New Guide to Assist Financial Fraud Victims

A new informational tool has been released by the National Center for Victims of Crime and the FINRA Investor Education Foundation to help victims of financial fraud.

Taking Action: An Advocate’s Guide to Assisting Victims of Financial Fraud provides step-by-step strategies to address major types of financial crime, including investment fraud, identity theft, mortgage and lending fraud, and mass-marketing scams. The guide is available for download or can be ordered from within the Program and Outreach Toolkit on the FINRA Foundation’s Web site.

“While prevention strategies have an important role to play in addressing financial fraud, the increasing incidence of financial fraud has made more urgent the importance of consistent and accurate advice to victims,” said FINRA Foundation President Gerri Walsh in a statement.

Financial fraud strikes people from all walks of life, and older Americans are especially vulnerable. A recent survey from the FINRA Foundation of nearly 2,400 U.S. adults age 40 and older revealed that more than 80% of respondents had been solicited to participate in potentially fraudulent schemes, and more than 40% of those surveyed could not identify some classic “red flags” of fraud. Additionally, Americans age 65 and older are more likely to be targeted by fraudsters and more likely to lose money once targeted.

The financial effects of investment fraud are enormous, costing consumers billions of dollars every year. A report by the Financial Fraud Research Center – Scams, Schemes and Swindles: A Review of Consumer Financial Fraud Research – found that an estimated $40 billion to $50 billion of measurable, direct costs are lost to fraud annually.

Taking Action represents not only an innovative collaboration between The National Center and the FINRA Foundation, but an important advancement in the victim services field,” said Mai Fernandez, Executive Director of The National Center for Victims of Crime.

Fraud researchers typically find that only a small percentage of people actually report to authorities that they’ve been a victim of financial fraud. In the FINRA Foundation’s survey, a small group of respondents who admitted to investing in a fraudulent investment, but did not report the fraud, said that reporting the crime would not have made a difference, that they did not know where to report it or that they were too embarrassed. Taking Action was developed, in part, to help increase the number of victims who report fraud and get access to assistance.

Top of Page