More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Meeting and Exceeding Clients and Regulators’ Expectations Although it can be difficult, there are ways for RIAs to meet or exceed client expectations, increase customer satisfaction, and help firms retain current clients and attract new ones.
1). ‘I’m Not Madoff’
We begin overseas in South Africa, where alleged swindler Barry Tannenbaum’s $1.8 billion Ponzi scheme now has some of its victims in trouble as well.
Bloomberg reports 17 suspects have been identified in the South African probe. More information needs to be gathered before charges can be brought, but investors in the alleged Ponzi scheme have also been investigated for non-compliance with tax laws.
According to the news service, Tannenbaum, 44, is thought to be in Australia.
In a comment that will surely live on in infamy, he claims he’s no Bernard Madoff, referring to the convicted swindler who is now in prison in the United States serving a 150-year sentence for running a $64 billion Ponzi scheme, thought to be the world’s largest.
2). Motherly Love
Shawn Merriman’s $20 million Ponzi scheme is not nearly the size of Tannenbaum’s transgression, but give him credit for chutzpah. This fraudster’s victims include his own mother, who asked the judge during the sentencing phase of the trial to “make him pay." The judge obliged with 12 ½ years.
Interestingly, part of the severity of sentence hinged on advisor status.
U.S. District Court Judge Marcia Krieger rejected a key government claim that Merriman was not only a fund manager but an investment adviser, and thus deserved more time behind bars.
However, Krieger gave Merriman a harsher prison term than federal guidelines required, citing his betrayal of family, friends and church members, and the risk that he might reoffend.
“This gets into the confusion names and titles and the level of liability associated with each,” says Kathleen McBride, editor of Wealth Manager Web and a member of the Committee for the Fiduciary Standard, a group that advocates for the Investment Advisers Act of 1940 as the industry fiduciary standard. “If nothing else, if they call themselves an investment advisor, they have to have a third-party auditor and third-party custodian. They’ll have a fiduciary duty to clients that they will have to constantly prove. But if they act accordingly under the investment advisor label, they’ll be better protected against legal action.”
3). Kiss of Death
This strikes us as particularly appropriate: Frank Castaldi ran a $77 million Ponzi scheme for 22 years, and was sentenced to 23 years.
According to The Associated Press, Castaldi, once a respected member of the Chicago-area Italian community himself, sometimes targeted the elderly, widows and immigrants from Italy— many of whom were close friends of Castaldi who trusted him, U.S. District Judge John Darrah said.
Victim Judy Milazzo testified how Castaldi knew most of his victims personally, befriending them over decades, attending their birthday parties and weddings.
"He is so deceitful and evil," she said. "He said all the right things and even kissed us each and every time he saw us. It was the kiss of death."
4). Won’t Get Schooled Again
Malvern Preparatory School in Malvern, Pa., agreed this week to return $700,000 received from convicted Ponzi schemer Joseph S. Forte, according to a consent order filed in U.S. District Court in Philadelphia.
The Philadelphia Inquirerreports the court-appointed receiver who is trying to recoup money for investors who lost $35 million in the fraud alleged that Malvern Prep had received about $800,000 in stolen money from Forte, but settled for the return of $700,000 because some of the money was used as tuition for Forte's son.
The settlement with Malvern Prep is a success for the receiver, Marion Hecht, who will have recovered $1.7 million when the Malvern Prep payment is received.
Hecht, the paper reports, is still attempting to recover $1.25 million in donations Forte made to Cardinal O'Hara High School, Monsignor Bonner High School, and St. Anastasia Church and School, plus $154,992 from Hilltop Preparatory School.
5). Don’t Cry for Me, Argentina …
A Colorado man accused of running a Ponzi scheme that took in more than $23 million was extradited from Argentina earlier in September to face charges.
The Denver Post reports that prosecutors accuse William L. Walters of bilking investors in Colorado and eight other states: California, Florida, Hawaii, Illinois, Massachusetts, Pennsylvania, Texas and Wyoming.
He's accused of soliciting day-trading investments, promising rates of return of between 10 and 40 percent. Prosecutors allege he used the money to pay his own expenses and make payments to other investors.
6). Cold Hands
And finally, another unpleasant probe. Although the SEC refuses to comment, Bloomberg reports the agency is stepping up its oversight of investment advisors, and is examining whether asset managers that channel money to hedge funds are acting in investors' best interest.
The agency asked money managers for information about their "due diligence" in selecting alternative investments such as hedge funds, private equity and venture-capital funds, according to a letter from the SEC's Office of Compliance Inspections and Examinations obtained by Bloomberg News.