Investor Alert.Dishonest IAs

How to Protect Your Money From Theft By Dishonest Investment Advisers

 With more people in charge of their investment portfolios than ever before, state securities officials are warning investors of the increasing sophistication of investment advisers who steal money from unsuspecting clients.

Victims include everyone from the retired couple next door, to the rising young executive hoping to make a fast buck, to the doctor and his or her country-club friends. State securities agencies are moving aggressively to catch these swindlers and warn everyone that constant vigilance is the basic ingredient of being an investor in today`s securities market.

Although most investment advisers are honest, those that are not see the burgeoning field of financial advice as a great way to line their own pockets. The danger is compounded by the average investor`s desire for maximum return, the concern of retirees worried about outliving their savings, the increase in investment opportunities, and the growing number of individuals holding themselves out as qualified investment advisers nationwide.

Examples of Fraud and Abuse

The following cases are a sample of the new type of financial scams by self-proclaimed and registered small investment advisers that state securities enforcement officials are encountering:

1. In Illinois, Howard and John Bozovich were not properly registered as investment advisers. Nevertheless, this father-and-son accounting firm told its clients that it would pool investor funds and purchase various securities. Twelve investors ultimately provided $1.7 million. Investigators from the Illinois Securities Department uncovered massive diversion of investor funds for the personal benefit of the Bozovichs. Victims included an entire church congregation where one of the Bozovichs served as treasurer. Both men were found guilty in state and federal courts. Howard was sentenced to 15 years. John received 11 years.
2. In Virginia, registered investment adviser Robert K. Williams, owner of College Planning Services of Virginia Beach, advertised his expertise in repositioning assets for families seeking financial aid for their college-bound children. Offering fraudulent securities and trust agreements, he obtained $293,000 from 14 Virginia investors and used the money to pay for personal and business expenses including a luxury Mercedes with the license plate IPLAN4U. One of his victims was a 19-year-old man who lost $15,000 he had received after his father had died from cancer. Williams was convicted on one count of mail fraud, sentenced to 24 months in prison plus three years of probation, and ordered to make restitution.
3. The Colorado Division of Securities reports that Murleen K. Kunzman swindled $1.8 million from 80 individuals she recruited from her income tax preparation service. In league with her husband and son, the Greeley, Colorado woman convinced her carefully selected clients that they would receive returns higher than certificates of deposit from nine separate limited partnerships in residential mortgage loans that she offered. After pleading guilty, she was convicted of securities fraud and money laundering and sentenced to 57 months in federal prison. Her former clients lost everything they invested.

NASAA Members Take Action

Until recently, all investment adviser firms in the United States -- entrusted with $10 trillion in customer funds -- were required to register with the Securities and Exchange Commission (SEC). But as a result of the National Securities Markets Improvement Act, which was signed into law by President Clinton on October 11, 1996, the states now have primary regulatory responsibility for investment adviser firms with less than $25 million in assets under management -- approximately 14,500 of the nealy 26,000 investment advisers and financial planners operating nationwide.

To date, all but four states require investment adviser representatives to be licensed. (Colorado, Ohio, Iowa, and Wyoming are the exceptions.) Most states require investment adviser representatives to pass an examination, undergo background checks, renew their registration annually, and report changes in their businesses or addresses promptly. States also review an applicant`s disciplinary history and financial stability prior to allowing the investment adviser to conduct business in a given jurisdiction.

The point-of-contact sale for most people is the investment adviser representative or salesperson. Over 30 states require that investment adviser representatives be licensed -- the SEC does not.

Most states also protect investors by actively pursuing a program of unannounced, on-site examinations of small investment advisers and careful screening of promotional materials.

What You Can Do To Protect Yourself

1. Investigate the investment adviser and salesperson thoroughly. Contact your state or provincial securities agency to find out if he or she is properly licensed to provide investment advice. If the individual also is licensed as a stockbroker, background information will be available through your state securities agency from the Central Registration Depository (CRD) -- a computerized reference system operated jointly by the North American Securities Administrators Association (NASAA) and the Financial Industry Regulatory Authority (FINRA). Contact information for all state and provincial securities regulators is available on the NASAA website at .

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2. Is the investment opportunity registered for sale in the state in which you live? Call your state securities agency to find out. All investment opportunities must be registered or exempt. If one being recommended to you isn’t registered or exempt, consider that a red warning flag to investigate further. Ask for and review carefully written disclosure information.

3. Always stay in charge of your money. Protect your nest egg. Once you’ve made an investment, carefully review your account statement. Make sure you know where your money is being held. Generally, you should receive account statements from the custodian of the securities as well as from your investment adviser. Confirm that all transactions are ones you’ve authorized.

4. Insist on a full explanation of investment recommendations and don’t invest in something you don’t understand. If the return on an investment sounds too good to be true, it probably is. A legitimate adviser should find out about your financial needs and goals, as well as the level of risk you are comfortable with, then suggest a “suitable investment.” Don’t allow the promise of high returns to cloud your judgment.

5. Keep notes about conversations and meetings. Con artists operate in an atmosphere of trust that persuades people there is no need to keep careful records. By keeping careful notes, you won’t have to rely upon your memory if your adviser later tells you something that does not seem right. If a lawsuit or dispute does occur, careful notes will help set the record straight.

Buyer Beware!

Whether due to a self-directed retirement plan, an inheritance, saving for a child`s education, or other reasons, today, more Americans than ever before find themselves in charge of their financial investments. Handling those investments are some of the most important decisions anyone can make. Although the vast majority of financial advisers are trustworthy, be on the look-out for those that are not. Being an investor requires education and attentiveness. Start asking questions before it`s too late.



• In Washignton, the State Department of Financial Institutions (DFI) recently warned investors to get a second opinion before investing, even if with a “trusted advisor” such as an attorney, to avoid the experience of victims defrauded by Everett attorney Barry Hammer. On Friday, Oct. 31, 2008 Hammer, 62 , an Everett, Washington attorney was sentenced in U.S. District Court in Seattle to three years in prison, three years of supervised release and 250 hours of community service for Wire Fraud in connection with a fraudulent investment scheme. From 2002 to 2004, Hammer convinced a number of his law practice clients to invest with him in various pieces of real estate. Hammer misrepresented to investors how he was going to use their money and, in Ponzi scheme fashion, used some of the investors’ money to repay earlier investors. DFI’s Securities Division issued an administrative Summary Order to Cease and Desist against Hammer in 2005, ordering him to stop the offer and sale of promissory notes to state investors. Later, Securities Division staff assisted in the criminal investigation of 
  Hammer.
  
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