How to Avoid Investment Fraud

Money For the Rest of Us

J. David Stein

Investing, Investing Podcast, Business, Economics, Economy

4.5 • 1.4K Ratings

🗓️ 10 April 2019

⏱️ 26 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

Here are precautions we can take to avoid ponzi schemes and not become victim to investment fraud.

In this episode you’ll learn:

What are sources to determine the background of individuals and firms who are selling investment products and advice.
What is the difference between registered investment advisors, registered investment companies and registered securities.
How to analyze performance and fees to make sure they are acceptable before we invest.
Why we need to be more wary if securities are not registered.

Thanks to LinkedIn and Sleep Number for sponsoring the episode.

For show notes and more information on this episode click here.

[0:17] Personal stories surrounding fraudulent investment schemes.
[2:38] The importance of authentic registration.
[4:28] Who you are working with, and what are they promising?
[6:34] Registered securities and registered investment companies.
[8:41] Disclosing information properly when being compensated.
[12:07] Deciphering performance claims.
[16:37] Understanding what the fees are paying for.
[18:37] Precautions to implement against fraud.

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Transcript

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0:00.0	Welcome to the money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it.
0:10.0	And we host David Stein today as episode 248. It's titled How to Avoid Investment Fraud.
0:17.0	In the year 2000, an ex-girlfriend of mine came to visit Laoprill and I. She drove a Red Dodge Viper that she said she
0:28.7	borrowed from a mutual acquaintance of ours that I hadn't seen also in 15 years.
0:35.0	She said it was one of five cars that he owned, that he lived in this huge house and he was doing really well investing. I thought it was odd because last I had heard
0:48.3	this gentleman was selling and installing home theater equipment.
0:53.0	But now he was managing money and was doing really, really well.
1:00.0	Now I was also an investment advisor at the time. I didn't own five cars and so it struck me as odd.
1:08.0	Then in 2003 the SEC filed an administrative proceeding against this individual, stating that he had acted as an
1:18.5	unregistered broker-dealer in connection with offering securities as part of a fraudulent scheme.
1:25.0	He had raised $35 million in his series of offerings and represented that he could and had traded in a successful options strategy.
1:36.3	Then in 2005 he was sentenced, he pled guilty.
1:41.6	They lost five million dollars of their client's money. As part of that plea, he acknowledged that he had used the money in purchasing automobiles paying for personal living expenses and gambling.
1:56.2	He was sentenced to 90 months in prison.
2:00.0	I was shocked to discover this and And then about eight years later, another incident,
2:05.1	this time when we were living in Idaho,
2:07.4	this time I didn't know the individual,
2:09.5	but I knew individuals who had been swindled by him, unregistered as an investment advisor or broker,
2:17.0	had an investment scheme that effectively was a Ponzi scheme and took millions from individuals.
2:27.1	Had promised 20 to 25 percent returns, including one of the victims was a local card dealership owner who had put millions with him.
2:38.0	This episode we're going to look at how to avoid investment fraud.
2:44.4	The first thing to do when somebody presents you with an investment opportunity,
	...

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