Article Features

October 2015 -

Michael S. Edmiston co-authored an article regarding the fiduciary duties of stockbrokers, though the willingness to reform has been few and far in between. Read more on Attorney Edmiston's viewpoint of the industry's reluctance to reform in his article here.

September 26, 2012 -

The Federal Bureau of Investigation reported that the many recent fraudulent schemes in the investment world confirmed an unpleasant reality in the securities industry: Rogue brokers, advisors, and principals target elderly investors because older citizens are an attractive group of investors to victimize with securities fraud.

In reporting its claim, the FBI cites several factors which make senior citizens likely to be targeted by fraudulent scammers and schemers:

The FBI draws the logical conclusion that seniors and elderly customers are most likely to have a nest egg, are more likely to own a home and/or vehicle and to possess better credit. In essence, the longer the life lived, the greater chance a person will have more funds with to misappropriate or otherwise pilfer through the sales of speculative securities, investment schemes, high-risk private placements, outright theft, and elder abuse.

The FBI paints a broad brushstroke, characterizing seniors as more wholesome, polite and trusting which ultimately are attractive attributes for con artists and fraudulent opportunists.

Finally, the FBI cites its own statistics, finding that older Americans are less likely to report securities fraud for a variety of reasons, make poorer witnesses and are more likely to believe wild claims. In essence, the Bureau believes that because elderly investors are more reliant on broker advice, they are more likely to fall prey to a fraudulent scheme or scam.

FINRA recently fined and ordered (the now defunct) Brookstone Securities to pay over $1.6 million in full restitution to elderly investors for what the FINRA termed as "preying on their elderly customers' greatest fears:" losing their assets to nursing homes and becoming destitute during their retirement and old age. The firm sold high-risk collateralized mortgage obligations ("CMOs") which imploded in the 2008 market crash.

From stocks, bonds, mutual funds, private placements, promissory notes, reverse convertibles, options, derivatives, medical equipment, medicare, life settlement and other healthcare-related investment schemes to Internet, e-mail or phone telemarketing or even mail scams, all investors can take a number of steps to protect themselves from falling into a con artist's financial trap. Be cognizant of the fact that many promises claimed on the Internet or even by telephone or postal mail may be false. For some fraudsters, it is as easy as a $10 investment to register a domain name and purport to be someone else in order to entice customers to invest in their bogus company.

Two of the greatest tools any senior citizen possesses are a keen mind and insatiable curiosity. Whenever a senior investor is presented with an investment opportunity, program, or scheme that seems "too good to be true" or even smells in the slightest bit fishy, it is important to ask questions. Some critical questions to ask are:

  • "How does it work?"
  • "How does it make money?"
  • "What is necessary for my investment make money?"
  • "Why is this opportunity being offered to me?"
  • "What does the person selling this opportunity stand to make if I invest?"
  • "What happens if I lose all my money invested in this?"

Asking as many questions as necessary to satisfy even the slightest concerns helps prevent investment fraud. If any part of a certain investment such as a stock; bond; mutual fund; private placement; promissory note; reverse convertible; option; or other derivative is confusing and a broker's initial explanation doesn't make sense, ask questions until you feel comfortable with your financial transaction. It is your money and you have the right to ensure your interests are being best served. Equally important, you always have the right and ability to say "no" before you invest.

Often a scammer or unethical broker will try to pressure an investor with a limited time to make a decision to avoid answering tough questions or score an easy sale. Warnings of limited time to buy something you do not fully understand are always a red flag.

In addition, it is important to gather information from outside sources. Regulatory agencies such as FINRA and the SEC are excellent sources for information about brokers, advisors, and the companies they represent.

The use of search engines like can reveal important information about a company, investment or scheme, the principals, the broker or advisor, and complaints from other investors. Many times other investors can serve as excellent sources of information. Keep in mind fraudsters know this too and will sometimes plant dummy "clients" to talk up an fraudulent scheme. Google searches will also reveal securities attorneys' blogs discussing recent cases often mentioning brokers, advisors, and investments by name. If a securities fraud attorney is discussing the investment you are being offered as part of an arbitration or court case, it is a red flag.

Before opening an account with any broker or advisor, investors should research their potential "advisor"—after all, this person holding the title "broker," "advisor," "consultant," "financial consultant" and his or her employing brokerage firm or Registered Investment Advisor will be engaging in important transactions that will affect both immediate and long-term financial properties.

Visit FINRA BrokerCheck, FINRA's publicly available and free to access database of every broker and brokerage firm. Brokercheck will reveal much (but not all) of a broker or firm's history, including discipline, arbitration claims, litigation, and customer complaints. It is important to remember that FINRA provides a limited selection of data to the public and there may be unreported matters known or unknown to FINRA. The SEC hosts a similar program for investment advisers, SEC IAPD (Investment Adviser Public Disclosure). Keep in mind that in many instances the reporting of complaints, arbitration, litigation, and discipline is voluntary and may not appear on the SEC's records.

For that reason it is important to ask a prospective broker or advisor about his or her past complaints, arbitration claim, and discipline. If the broker answers with anything less than forthright, direct, and on-point answers, it is a red flag.

In opening an account, be sure the new account information is completed and accurately reflects your goals, objectives, and risk profile. If an advisor tells you to "mark" a certain box or provide specific information to be eligible for the investing being offered, that is a red flag.

After the investment is made it is important to conduct both regular and irregular check-ups of accounts or funds. Theft of funds, or "conversion" can occur even in legitimate brokerage accounts. Take advantage of reading and reviewing account statements and other services offered by the brokerage firm or investment company. Never ever be afraid to speak to your broker's or advisor's manager. In addition, if you sense something is going wrong, act quickly to make a complaint or seek assistance.

If you take these steps, you will minimize the odds of falling into the crosshairs of a securities fraudster's criminal scheme and becoming a victim of financial elder abuse.

Unfortunately, there always remains a chance that any investor, regardless of sophistication or wealth may find themselves the victim of a broker's or advisor's misconduct. If you suspect or have discovered such misconduct that has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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