Investment Category Archives — Securities Fraud Lawyers Blog Published by Securities Fraud Attorneys

Are You Planning for Retirement or Are You Already Retired? Potential Problems To Consider Before Entrusting Your Retirement Assets to a Registered Investment Adviser

Published on: May 22, 2023 | by Savage Villoch Law, PLLC

Whether you are in retirement or are planning for retirement, you may consider working with a Registered Investment Adviser (RIA) to manage your retirement assets. RIAs offer professional financial advice and are bound by the fiduciary duty to act in your best interest. However, there are potential issues you should be aware of as you consider working with an RIA. Here is a list of 10 potential problems with entrusting your retirement assets to an RIA.

Misalignment of Interests: While RIAs are held to a fiduciary standard by the Investment Advisers Act of 1940, this does not entirely eliminate the risk of self-interest affecting an RIA’s advice. For instance, RIAs might favor only those investment products from firms that are paying significant commissions to the RIA for selling that product. This means there is a significant potential conflict of interest causing an RIA to recommend the same small set of investment products to every potential client.
Limited Product Offering: Many RIAs have a limited range of investment products due to affiliations with certain investment companies. This could mean you may not have access to the full spectrum of investment options that might be more suitable for your retirement needs.

The Most Common Investment Fraud Tactics – Part Two

Published on: November 7, 2022 | by Savage Villoch Law, PLLC

One of the best ways an investor can protect the value of their investments is by equipping themselves with knowledge about common tactics scammers use to defraud investors. The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have identified five of the most common techniques used in committing investment fraud. [1]

More information on the first three of these tactics – the “phantom riches” tactic, the “social consensus” tactic, and the “credibility” tactic – and how investors can avoid them can be found in Part One of this two-part series.

Here, we will consider the remaining two most common investment fraud tactics identified by FINRA and the SEC: the “reciprocity” tactic and the “scarcity” tactic.

The Most Common Investment Fraud Tactics – Part One

Published on: October 31, 2022 | by Savage Villoch Law, PLLC

When it comes to protecting investments, one of the most useful strategies is awareness. Investors can empower themselves by knowing the basics of the most commonly used investment fraud tactics.

Per the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC), three of the most common investment fraud tactics employed by scammers in the United States are known as the “phantom riches” tactic, the “source credibility” tactic, and the “social consensus” tactic. [1]

Each tactic essentially functions by allowing the fraudster to build a false narrative surrounding their supposed investment opportunity, thereby garnering interest and ultimately investment dollars from unsuspecting investor victims.

Three Simple Methods for Protecting Your Investments

Published on: October 24, 2022 | by Savage Villoch Law, PLLC

As the familiar adage goes, the higher the risk, the higher the reward. Of course, when it comes to investment strategies, risk is often one characteristic around which you can make informed decisions to mitigate or embrace, depending on your level of risk tolerance.

Yet there is one investment risk – the risk of fraud – which at first glance seems uniquely difficult to mitigate. Fortunately, there are indeed several steps investors can take to protect their hard earned investment dollars from fraud.

In the United States, the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) each offer investor resources for reducing the risk of investment fraud.

Under False Persona, Man Defrauds Investors of Millions

Published on: October 17, 2022 | by Savage Villoch Law, PLLC

In a stark reminder to thoroughly confirm your stockbroker’s background, the Securities and Exchange Commission (“SEC”) recently charged a California man with defrauding investors of millions of dollars by using a patently false persona. [1]

The SEC’s complaint charged Justin Costello with violations of the anti-fraud provisions of several federal securities laws as a result of his role in this massive fraudulent scheme. [2]

While the SEC’s complaint alleges a broad web of fraudulent investment schemes, Costello mainly operated through deceit about his background, his qualifications, and the value of the companies he owned and operated. [2] Throughout the span of his fraudulent schemes, Costello was never registered with the SEC as a broker-dealer nor investment adviser. [2]

Has Your Stockbroker Defrauded You?

Published on: October 10, 2022 | by Savage Villoch Law, PLLC

Even a well-trusted investment advisor can take advantage of their client relationships, as illustrated by a recent lawsuit brought by the United States Securities and Exchange Commission (“SEC”).

Per the SEC’s September 29, 2022 complaint, Bradley Goodbred, a registered investment adviser based in Illinois, misappropriated a total of $1,295,000 from a 97-year-old client between 2012 and 2021. [1] While the defendant, Goodbred, returned a portion of this money, his client still lost more than half a million dollars as a result of his fraudulent actions. [2]

According to the SEC’s complaint, Goodbred became the client’s investment adviser sometime before 2006, when the client and her husband were searching for a trusted, long-term financial adviser to help guide financial decisions in the event that the client’s husband passed away. [1]

Is Your Stockbroker Keeping Your Personal Data Safe?

Published on: September 26, 2022 | by Savage Villoch Law, PLLC

While it may be difficult to verify first-hand how secure your stockbroker keeps your personal information, a recent order from the Securities and Exchange Commission (SEC) shows that even the largest stockbrokers are prone to customer data breaches.

On September 20, 2022, the SEC fined financial services giant Morgan Stanley Smith Barney (“MSSB”) $35 million for failing to adequately protect its customer’s records and personal identifying information (“PII”). [1] The fine was entered via a settlement between the SEC and MSSB, through which MSSB has agreed to pay a civil penalty for the SEC’s charges without admitting to nor denying the violations. [2]

MSSB is a subsidiary of Morgan Stanley and focuses on wealth management services for clients ranging from individuals to large corporations. [3] More specifically, MSSB is the broker-dealer designation for the group more commonly known as Morgan Stanley Wealth Management. [3] During the second quarter of 2022, Morgan Stanley Wealth Management recorded $5.7 billion in net revenues. [4]

Organizer of $77 Million COVID-19 and Allergy Testing Scheme Convicted on Securities Fraud Charges

Published on: September 12, 2022 | by Savage Villoch Law, PLLC

On September 2^nd, 2022, the United States Department of Justice (DOJ) announced that Mark Schena, the president of a Silicon-Valley medical technology company, was convicted by federal jury for his role in a $77 million fraudulent Covid-19 and allergy testing scheme. [1]

The jury convicted Schena of three counts of securities fraud, two counts of payment of kickbacks, one count of conspiracy to pay kickbacks, two counts of health care fraud, and one count of conspiracy to commit health care fraud and conspiracy to commit wire fraud. [1] While he won’t be sentenced until early 2023, Schena faces a maximum of 20 years for each count of securities fraud alone. [1]

While this case draws quite a few parallels to the early-2022 trial and eventual conviction of Elizabeth Holmes, the founder of Theranos, it has thus far drawn far less media attention. [2] Still, Schena’s conviction provides another important glimpse into the dangers investors may face when dealing with alleged cutting edge or “revolutionary” technologies.

New SEC Investor Alert Highlights Dangers of Social Media Investment Fraudsters

Published on: September 6, 2022 | by Savage Villoch Law, PLLC

In response to a recent proliferation of fraudulent investment schemes perpetrated over social media platforms, the Securities and Exchange Commission (SEC) released an Investor Alert covering “Social Media and Investment Fraud” this week. [1]

The Investor Alert, released by the SEC’s Office of Investor Education and Advocacy, highlights the unique dangers investors face when evaluating investment prospects and making investment decisions via social media platforms or over the internet. In particular, the alert warns investors that investment information portrayed on social media may be “inaccurate, incomplete, or misleading.” [1]

Furthermore, the alert cautions that the broad-reaching and low-cost nature of social media can create “false impression of consensus or legitimacy” of investment prospects, creating the illusion that far more people are making the investment than truly are. [1]

SEC Targets $300 Million Crypto-Based Pyramid and Ponzi Scheme

Published on: August 29, 2022 | by Savage Villoch Law, PLLC

On August 1, 2022, the Securities and Exchange Commission (SEC) charged eleven individuals in connection with a cryptocurrency Ponzi and pyramid scheme. [1] The alleged scheme was perpetrated through a website called Forsage, which operates via smart contracts over the blockchain.

The eleven defendants include Forsage’s four founders as well as several “promoters” of the Forsage scheme. [2] The SEC’s complaint notes that to date, more than $300 million worth of transactions have occurred via Forsage smart contracts, despite the fact that the retail investors powering this scheme have received no good or service of value in return for their “investments.” [2]

Forsage is a classic pyramid scheme in that those at the top – namely the founders and promoters charged by the SEC – stood to gain the most wealth, especially as others joined the scheme after them. In fact, a recent scholarly report on the scheme found that more than 88% of Forsage users incurred net losses on their investments with the platform, with those at the top generating massive gains. [3]