Leonard J. Hansen

Scams and Scalawags Avoid Investment Schemes and Scams

By Leonard Hansen

You worked hard for the money which funds your retirement. There are people, though, who work just as hard to take it away from you through investment schemes and scams. They don't care whether you're rich or near poor; if you have any money or asset, they will work aggressively to take it from you. Today, the most available money for the taking by the disreputable is owned by mature adults. And the schemers reap more than $40 billion each year just by telephone, and 80 percent of their victims are senior Americans. The Federal Bureau of Investigation estimates that there are 14,000 illegal telephone sales operations successfully plying their frauds daily. Add to this thousands of operators who are luring investors to their dishonest schemes via the Internet, bulk email (spam) and bulletin board postings. And opening the mailbox may present added fraudulent investment pitches. So, because most mature adults will listen to telephone pitches, read even the most questionable direct mail, and consider unfounded personal presentations and recommendations, they are the most often targeted by perpetrators of investment con games. Consider these cases: An "investment representative" from Hillcrest Financial Corp. talked 81yearold L. Viggio Thomsen of Holyoke, Colorado, out of his safe, income producing $90,000 investment the entire retirement savings for the former farmer and national park employee and his wife Marie. The pitch was a fraud; the investment he sold in Globus Group, Inc., was bogus; and the $90,000 was quickly lost. According to federal prosecutors in New York City, another 800 persons, mostly mature adults, lost $7.3 million in the Globus scam. Another "investment counselor" pressured a retired woman in central Pennsylvania into putting the $45,000 proceeds from her late husband's insurance policy into viatical contracts to fund discounted bulk life insurance payments to people determined terminal. Major returns were promised in the pitch. According to state investigators, due to the high sales commissions and financial manipulation, the woman's retirement income funds disappeared. And a young stockbroker took over the $1.25 million investment portfolio of a 90year old Alaska woman when her longtime representative retired. Her Blue Chip financial package produced a fine income flow each year from the 1950s. But, as the young broker made commissions on selling securities, he used aggressive pressure on the woman to switch her investments to high risk oil and gas exploration and limited partnerships. Four of the limited partnership purchase agreements were bought while she was in a coma in a hospital, according to her attorney, John Lawrence Allen, who has a national practice in consumer claims against misrepresentation and fraud in investments. In every transaction, the broker made money from the principal; and several of the high risk investments crashed. Within a few months, all $1.25 million was gone. There are bright, bittersweet and tragic sides to these cases documented by prosecutors and attorneys. Viggio Thomsen died a financial failure and his wife lapsed beyond comprehension from Alzheimer's disease before arbitration before the National Association of Securities Dealers (NASD) won $265,000 in financial recovery, penalties and legal fees from the New York City-based brokerage, Hillcrest Financial, Inc., and securities clearing house Bear Stearns & Co. Federal prosecutors also indicted and convicted 18 people involved in Hillcrest Financial scam. State securities prosecutors in Pennsylvania won restitution for the woman whose investment funds were switched into funding viatical contracts. Michael J. Byrne, director of the Pennsylvania Securities Commission enforcement and litigation division, said that "through their choice of media, fraud operators can target mature adults anywhere in the United States. With desktop publishing systems, they can produce high quality printed materials, even if the content is fraudulent." Recovery of the $1.25 million was gained through the NASD arbitration process, "but the family went through financial devastation because of the wrongful acts of the ruthless investment salesman," stated John Lawrence Allen, the attorney who successfully represented the victim. The offers that sound too good to be true are predictably fraudulent, but the individual mature adult must be his or her own first line of defense, advises the Fraud Information Center, a project of the nonprofit National Consumers League. Viggio Thomsen received his fraudulent pitches by telephone, the first medium of choice by swindlers. The unsolicited call addressed him by name, expressed concern about the low rate of income he was making from his certificates of deposit and then moved to an aggressive pitch for Globus Group, Inc. and its new expansion into worldwide Internet services. Thomsen, concerned about the $2,500 per month cost of nursing home care for his wife, listened and bought the pitch which promised a much greater return plus appreciation. In three such transactions, and at increasing stock prices, all $90,000 was invested in Globus. "The stock was a scam; the pitch was a scam; and Mr. Thomsen's life savings were wiped out," said Steve A. Miller, Denver attorney specializing in investment litigation. Miller won the arbitration which awarded the victim $265,000 in restitution, penalties and fees. "I am concerned for other mature adults who may listen to such fraudulent pitches," said the attorney. "If you don't listen to unsolicited investment pitches, you can't be taken." "There is no high return without risk," advises Allen, once a prosecutor of highprofile crime in Los Angeles and former investment broker. "If even a legitimate investment is promised to return 15 percent versus five percent from your certificates of deposit, expect three times the risk. But, the pitches of giant returns without risk are not true; expect the offer to be fraudulent or significantly misrepresented." Consider every investment proposal with scepticism, don't assume anything," recommends Barbara Steinmetz, a certified financial counselor based in Burlingame, California, just south of San Francisco. "At your bank, savings and checking accounts are insured to certain levels by the Federal Deposit Insurance Corporation, but mutual funds and other financial instruments offered by the institutions are not so insured. When when the investment performs poorly or goes bad, the mature adults are devastated on learning the truth." Allen, Miller, Byrne and Steinmetz, together with reports from the Securities and Exchange Commission (SEC), Federal Trade Commission (FTC), North American Securities Administrators Association (NASAA), Institute of Certified Financial Planners (ICFP) and the National Fraud Information Center (NFIC) offer these suggestions to mature adults on how to avoid being taken by an investment scheme or scam: Be suspicious of every telephone caller who is pitching investments, urges attorney Allen. "Don't give in to pressure or that you must act immediately or the opportunity will be gone forever. Don't agree to anything on a first call. You don't even have to listen to the pitch. Don't provide personal, credit, checking account, Social Security or other information to anyone you don't know and trust. Don't consider anything without receiving written information. Do check out the representative, investment and brokerage with the many state, federal and nonprofit agencies available before making any commitment." "Know with whom you are dealing," advises prosecutor Byrne. "Securities brokers, representatives and investments must be registered with the SEC, NASD, the stock exchanges and state securities agencies. "Never deal with a stranger." Byrne also cautions about a new version of the classic Ponzi scheme in which investors are promised great returns and the first in do receive such dividends, funded not from the business profits but from the investments of other, later investors. It is a financial house of cards which predictably crashes. The first investors get some money back, the perpetrator gets rich, and all investors lose their money. "The new Ponzi version is called an affinity group, and in 1998 was targeted effectively to church members, particularly those of fundamentalist beliefs." "Always get a second opinion on any investment, from an independent financial planner, your attorney or accountant," recommends Steinmetz. "Never rush into any investment decision." "Never respond to a bulk mail (spam) message on the Internet. Period," urges Byrne. Doing such may open the door to a flood of schemes and scams. "Also be wary of unsolicited mail or postcard decks which blindly offer a greater return on your money when you complete and return the card. You are presenting your candidacy not only to one possible questionable pitch but many others as the recipient sells your name and contact information to other telephone boiler rooms." Never agree to have your payment picked up by a courier or express service, urges the NFIC. "Legitimate companies don't try to keep people from checking the deal out, or try to evade postal authorities by demanding immediate payment by courier or wire." If the caller says "as an investor in this program, you must keep it secret while we identify only the best participants (or similar)," hang up immediately, recommends Byrne. "If it is to be secret, it is surely a scam." Never give anyone control over your investment portfolio is a recommendation unanimously made. A broker makes commissions on trades, nothing on a portfolio without transactions. Giving control to a broker invites churning, where invested funds may be moved many times each year. In each transaction, the broker makes money and the value of the investment may be diminished by more than the commission. Be wary of investment seminar programs conducted by traveling organizations. In an 11-state sweep in 1998, the FTC cracked down on investment seminar companies which were luring mature adults to hotel meeting rooms to pitch investments in which they had ownership and on concepts which had little or no merit. Prosecutor Byrne also warned against most seminars as presenting "one kind fits all" schemes when "an investment plan should be customized to the specific situation and goals of the individual." If you believe that you are the victim of investment fraud, file a complaint immediately. "Don't accept the loss," stated Allen. "The NASD arbitration process may be open to you. It is quicker and less costly than filing in civil court; the decision cannot be appealed and the defendant has only 30 days to pay any award. Most attorneys practicing in this field accept the cases on a contingency basis, so the entire process to recovery may be quite affordable." Federal and state regulators and prosecutors are empowered to help. The agencies include state Attorney's General or securities commissions, Securities and Exchange Commission and Federal Trade Commission, plus fraud units of local and regional law enforcement units. Most have tollfree telephone numbers. Before investing anywhere and any amount, Allen recommends doing a personal financial assessment. "Ask your bank for a loan application and complete it for your own evaluation of your assets and liabilities, income and other contingencies. If working with a local stock broker, present a copy of the completed form so that he or she can help determine your suitability for certain types of investments, risk tolerance and investment goals." "If it is to be, it is up to me." In considering investments, the timeworn adage should be a personal guidepost together with "Buyer beware." There are good investments which can provide fine, low-risk and predictable retirement income. Unfortunately, the telephone may ring, an email message may arrive, a letter may be opened or even a broker recommendation may present a fraudulent or misrepresented investment pitch. "If someone pulls a gun on you and demands your money, you don't have much choice," states attorney Allen. "But, you can always walk away from a swindler."