Customers of MF Global could have reason to believe they’ll get more of their money back from the collapsed broker/dealer. James Giddens, the trustee in charge of the firm’s liquidation, is asking a bankruptcy court to distribute another $685 million to MF Global customers.

As reported March 15 by Bloomberg, Giddens wants commodity customers who traded futures on foreign exchanges to receive payments about $50 million, while some $600 million is slated for customers who traded on U.S. exchanges. Holders of physical assets like precious metals are in line to get about $35 million.

Each of the distributions requires a judge’s approval.

MF Global Holdings Ltd., the broker’s parent company, filed for bankruptcy protection on Oct. 31. At the time, it had debt totaling nearly $41 billion after making $6.3 billion in risky trades on European sovereign debt and other assets and getting margin calls. Reports later came to light that as much as $1.2 billion was in missing in client money and that the company’s leverage ratio was an astonishing 38-to-1.

So far MF Global clients have received about 72% of their money following the company’s derailment on Oct. 31. The new distributions, however, would increase that percentage, giving customers who traded on U.S.exchanges about 80% of their claims paid. For customers who traded on foreign exchanges, the amount is less than 10%.

MF Global’s former CEO Jon Corzine has come under fire following his firm’s implosion. Corzine came to MF Global in March 2010 shortly after the firm faced a scandal involving a trader making unauthorized bets. Earlier this month, Corzine testified at a congressional hearing on his firm’s collapse but offered little insight into the millions of dollars in missing customer funds.

After years of building an investment portfolio, you’re presented with what appears to be a home-run financial opportunity. Before jumping in headfirst and betting your lifesavings, think twice.

Investment fraud is big business in an economic downturn, and can lure novice and sophisticated investors alike. In many cases, the victims are elderly.

All investments contain certain risks. Anyone who promises high returns with little or no risk is more than likely trying to scam you out of your money.

A recent article by Financial Highway offers several tips for spotting potential financial fraud schemes:

Pressure to invest immediately: Whenever someone is pressured to immediately turn over money regarding a potential investment “opportunity,” consider it a red flag. In any investment, it’s wise to research the company or investment advisor behind the investment pitch. Is the company legitimate? Are there arbitration filings or disciplinary actions against the broker? Is the person or company a member of the Financial Industry Regulatory Authority (FINRA)? To investigate the background of an investment firm or broker, check FINRA’s Broker Check Web site.

Lack of quality information about the investment:  When discussing investments, ask yourself if your questions are being answered thoroughly. Is the person offering comprehensive information about the financial product in question? Is he or she willing to provide physical documentation, such as a prospectus and other financial documents? If the answer is no, it could be a sign of a scam.

Flashy presentations that don’t hold up: According to the Financial Highway article, most fraudsters produce Web sites and marketing materials that on the surface appear professional but on closer inspection don’t add up. For instance, there may be a number of spelling and grammar mistakes or the description of the investment itself simply doesn’t make any sense.

An investor arbitration award involving tenant-in-common exchanges (TICs) may have been the final blow for broker/dealer Pacific West Securities. On March 6, a three-person arbitration panel of the Financial Industry Regulatory Authority (FINRA) awarded $2.1 million to a former client of a broker – William Swayne II – affiliated with the firm.

Pacific West announced in December that it planned to close its doors this month and that it had begun a recruiting effort to move the company’s brokers to Multi-Financial Securities Corp. According to the Broker Check Web site, however, Pacific West has yet to file the necessary paperwork to close or withdraw from the securities industry.

As reported March 13 by Investment News, the recent FINRA award against Pacific West Securities involves claimants Joseph and Marilyn Lightfoot, who allege that their TIC investments were not suitable for them “given their age, financial condition, cash flow needs, risk tolerance, over concentration in real estate and for other reasons.”

Included in the award was $200,000 in legal fees and interest.

The lack of suitability of the TICs was highlighted in the arbitration panel’s decision.

 “Among other evidence of a violation of a standard of care under the Securities Act of Washington was the disavowal by [Pacific West and its broker, William Swayne II] of any obligation to conduct a suitability analysis for the sale of TICs in the circumstances of a Section 1031 – like-kind-assets exchange for tax deferral purposes,” according to the award. The arbitrators “determined that the sale of these securities to [the Lightfoots] violated the duty of reasonable care.”

Failed deals and misrepresented investments involving private placements, non-traded real estate investment trusts (REITS) and other alternative financial products resulted in an increased number of enforcement actions and fines by the Financial Industry Regulatory Authority (FINRA) in 2011. According to an annual study by Sutherland Asbill & Brennan LLP, fines from FINRA totaled $68 million last year, up 51% from $45 million in 2010.

FINRA reported filing 1,488 disciplinary actions in 2011 compared to 1,310 cases in 2010, the study says. The biggest enforcement increase concerned inaccurate or fraudulent advertising. Sanctions in that area rose to $21.1 million in 2011, from $4.75 million in 2010.

Suitability cases in particular resulted in $7.7 million in reported fines in 2011.  The 106 cases involving suitability allegations last year doubled the 53 cases reported in both 2009 and 2010, the study said.  Similarly, fines in suitability cases jumped from $3.75 million in 2010 to $7.7 million in 2011, a 105% increase.

R. Allen Stanford’s conviction for running a $7 billion Ponzi scheme is yet another reminder that investors need to keep their guard up when presented with investment opportunities that sound too good to be true.

Stanford was accused of defrauding some 30,000 investors from 113 countries over the course of 20 years with bogus certificates of deposit sold by his bank inAntigua. According to prosecutors, investors thought their funds were being invested into safe and conservative assets when in actuality their money was used to fund risky businesses, as well as Stanford’s lavish lifestyle.

Financial frauds like Stanford’s are far from a rarity. Fraud complaints to the Federal Trade Commission (FTC) have quadrupled during the past decade and are up 35% in the past three years alone, according to The Rise of Financial Fraud, from the Center for Retirement Research atBoston College. It’s likely, however, that financial fraud is much more pervasive in that it often goes unreported to authorities.

The elderly are particularly vulnerable to financial fraud. Many individuals who become victims suffer from dementia or are desperate to find ways to recoup the financial losses they suffered during the 2008 market downturn.

The Boston College report includes a list of red flags regarding potential financial fraud schemes, including investments that sound too good to be true, financial products that supposedly guarantee high rates of return but little risk, and proposals that include the “free-lunch” seminar.

A Feb. 29 article by CBS Money Watch reminds investors that when presented with a financial opportunity or proposal to be aware of the rates of return that are available with different types of investments. As of March 2, the Board of Governors of the Federal Reserve System shows these rates of return as the following:

- 0.52% for six-month CDs;
- Under 1% for Treasuries with durations of five years or less;
- Returns of 1.97% for 10-year Treasuries and 2.74% for 20-year Treasuries;
- 3.82% and 5.08% returns for corporate bonds, depending on the bond’s duration and quality; and
- Returns of 3.72% for state and local municipal bonds.

The Securities and Exchange Commission (SEC) wants investors who were scammed by R. Allen Stanford in a $7 billion fraud scheme to be treated as brokerage customers by the Securities Investor Protection Corporation (SIPC). If that happens, investors would stand a chance of getting some of their money back.

The SIPC works as an insurance fund, and is backed by member brokerages. While it isn’t designed to cover investment losses, it is supposed to provide a measure of protection for investors in the event that their brokerage goes bankrupt or fails because of alleged fraud. The protection amounts up to $500,000 per customer.

In the Stanford case, the SIPC has been unwilling to pay up, even though the SEC told it to do just that more than two years ago. The SIPC, however, says the protection provided to investors does not apply to those who were bilked by Stanford because the bogus certificates of deposit they bought were sold through Stanford’s bank in Antigua, rather than being held by the brokerage.

That technicality was the subject of a March 7 congressional hearing, in which legal analysts and lawmakers offered their thoughts on the issue, along with recommendations for improving the SIPC.

It’s an idea that may be long overdue following the recent rash of Ponzi schemes and failed private placement deals: Revisiting the protections afforded to investors by the Securities Investor Protection Corporation (SIPC).

The SIPC, which is the public corporation charged with aiding victims when their brokerages fail or file bankruptcy, took center stage on March 7 at a Congressional hearing titled The Securities Investor Protection Corporation: Past, Present, and Future.

Steven Caruso, a partner with Maddox, Hargett and Caruso, P.C. testified at the hearing. His recommendations for improving the SIPC include increasing investor protection from $500,000 to $1.3 million and indexing that amount to the rate of inflation moving forward.

Currently, brokers pay an annual premium to fund the SIPC. Should SIPC coverage be expanded in the future, however, these same brokers may be tapped for additional funds.

Proponents of the idea say it enhances accountability, forcing brokers to improve their due diligence of the products and investments they market and sell to clients.

During the March 7 hearing, Caruso also suggested that investment advisers and brokers/dealers be required to purchase insurance given that they are entrusted with billions of dollars in investment funds.

“There is no free lunch in this world,” Caruso said in a March 7 Investment News article.

“When we have a fiduciary who is out there as an investment professional, requiring insurance will go a long way to helping potential [fraud] victims.”

Investors whose portfolios have taken a hit recently might not be too keen to open their account statements. Bad move, according to the Financial Industry Regulatory Authority (FINRA). Instead, the self-regulator cautions investors to review their statements carefully and immediately contact the firm issuing their account statement about any unexplained fees, overcharges or unauthorized transactions.

“A single keystroke can make the difference between 100 and 1,000 shares,” says Gerri Walsh, FINRA’s Vice President for Investor Education.

On Feb. 23, FINRA issued a new Investor Alert titled It Pays to Understand Your Brokerage Account Statements and Trade Confirmations that details in plain language key elements of customer account statements, plus “red flags” that can help investors spot and avert problems.

The Securities and Exchange Commission (SEC) also is taking up the subject of unauthorized trading. On Feb. 27, it issued a risk alert outlining preventative measures to help brokerages improve their policing of authorized trades.

The collapse of Medical Capital Holdings has led to numerous lawsuits and arbitration complaints by investors against the brokerages that failed to perform their due diligence before selling them private-placement investments in the troubled company. Now, for what is believed to be a first, an individual has been criminally charged with securities fraud for his role in selling Med Cap notes.

Nine counts of securities fraud were filed Feb. 23 by the Weld County District Attorney’s Office against John Brady Guyette. According to the Weld County complaint, the former Colorado stockbroker sold $1.3 million of Medical Capital investments to investors between August and December 2008. During that time, Medical Capital was showing signs trouble and had already missed several payments to investors in certain note offerings.

As reported Feb. 27 by Investment News, the focus of the complaint against Guyette concerns allegations that he sold Medical Capital notes to investors after the company failed to make payments to investors.

One of those investors is Lucille Linde, 92, who lost her life savings in Medical Capital investments. She began investing in Medical Capital and with Guyette in 2005. Three years later, in August 2008, she invested $300,000 in Medical Capital VI, says the Investment News article.

“Linde reported that prior to writing the checks on Aug. 15, 2008, [she] had been told by a fellow MedCap investor, Borge Villemsun, that MedCap had been late in making principal and interest payments to [him],” the complaint reads. “Linde reported confronting [Mr. Guyette] with this information. Linde reported that [Mr. Guyette] assured [her] that Villemsun had been paid and that the MedCap VI investment was guaranteed safe.

“Linde was not aware that when [she] wrote the checks on Aug. 15, 2008, MedCap II had failed to make principal and/or interest payments due to MedCap II investors. [Mr. Guyette] failed to disclose this information to Linde.”

The Securities and Exchange Commission (SEC) filed fraud charges against Tustin-based Medical Capital Holdings in 2009, freezing its assets and appointing a receiver to oversee its financial books. A number of independent broker/dealers subsequently came under fire from regulators for failing to disclose key information about Medical Capital to investors.

Securities America was the independent broker/dealer subsidiary of Ameriprise. It was one of the broker/dealers of Medical Capital Investments, selling some $700 million of the private placements. In August 2011, the B-D was acquired by Ladenburg Thalmann Financial Services Inc. for a reported $150 million in cash.