After Bernie Madoff’s massive Ponzi scheme brought the financial world to a standstill in 2008, there was hardly a household in the country that didn’t know something about investment fraud. In the years since, a vast majority of the nation’s headlines have either exposed new fraud schemes or offered tips on how to avoid becoming a victim. Now, as we begin 2013, most investors believe they know the key facts about investment fraud: Fraudsters often use their group memberships to garner trust. They promise high returnsat little to no risk. And, they most frequently target investors over the age of 65.
Coupled with the persisting myths of investment fraud (i.e. that the less educated, less experienced investors are most likely to fall prey to a con artist) – they can obscure the real truths behind who is and who isn’t at risk of losing their money in a scam.
Investors who believe experience, wealth, or education makes them immune to investment fraud may find themselves counting their losses at some point in the near future.
Victims of these schemes include those who are considered wealthy and those on fixed incomes; seniors over 65 as well as those under 40; highly experienced investors and first-time investors; Ph.D.s and high school grads; and everything in between. Even celebrities have lost money to an investment fraud scheme in recent years.
The truth is fraudsters don’t really care who you are, how experienced you may be, or how much money you have; they only care about whether they can convince you to part with that money.
Fraudster Philip Horn, for example, used his long-time experience in finance, his Wells Fargo brokerage firm affiliation, and his country club membership to swindle wealthy investors out of millions of dollars for over two years. According to the New York Times, Horn – a financial advisor with Wells Fargo – met his victims on the golf course, handed them his business card, and slowly convinced them to invest millions of dollars with him by becoming their friend and dropping hints about winning trades. Once he had gained their trust and their business, he systematically stole their funds by executing and cancelling trades in their portfolios and pocketing the profits.
Unfortunately for them, Horn managed to keep his scheme going and to avoid detection by the bank by limiting his paper trail and burying the fraudulent activity amidst hundreds of legitimate transactions. Because he was a trusted acquaintance and friend, few of Philip Horn’s investors took the time to carefully study the extensive trading documentation that he handed out on a regular basis.
If Horn’s clients had been more vigilant on the front end, they may have recognized something was amiss with their investments long before the bank finally brought the thefts to their attention. After all, Horn didn’t want to meet at the office, and he often kept his clients’ trading documents in his trunk. Such actions should have raised at least a few investment red flags. Yet, many of Horn’s clients let his gregarious nature, friendly overtures, and smooth manners override their misgivings.
“Phil would present his investments as if he was giving you something that would protect you,” one investor told the NY Times, adding “he was also just a guy you wanted to drink with.” (“Madoff Aside, Financial Fraud Defies Policing,” Jan. 6, 2013)
And, Horn’s not alone.
Despite the plethora of new regulations enacted after Madoff, preventing fraud before it is too late is still a problem for regulators. The best thing investors can do to avoid losing money in an investment fraud scheme is to protect themselves. This means carefully researching every financial professional and every investment opportunity before parting with any money, and continually monitoring and reviewing each and every investment account. It also means remembering that anyone can fall victim to an investment scheme – even wealthy investors with years of investing experience.
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Meyer Wilson represents individuals across the country who have been harmed by investment fraud. All of our cases are handled on a contingency fee basis and we never request a retainer of any kind. Contact us for more information or complete the online form on the top of this page and we will respond promptly.