More On Legal & Compliancefrom The Advisor's Professional Library
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
There was a time when the occasional grifter stole from Ol’ Lady Anderson to the shock of friends and neighbors. Now it’s much more commonplace. Not that advisors as a group are falling into disrepute; rather, the financial downturn and accompanying hard-luck stories have attracted more than their share of Broadway-style music men.
Here's this week’s best of the worst:
1) Yeah, this guy’s going to hell—The former executor of a will leaving hundreds of thousands of dollars to Tennessee Children's Home is to be arraigned Nov. 17 on theft charges.
The Tennessean reported Thursday that Daryl Bornstein is accused of squandering roughly $800,000 left in a will to the Tennessee Children's Home by Metro firefighter Raymond Simmons. Simmons died May 4, 2006. Bornstein spent from the estate until last month when he was ordered to turn over the remaining assets and all corresponding paperwork to probate court.
Officials with the children's home now estimate there may only be about $50,000 left.
2) Extra points for longevity—Imagine being the proud parent of a newborn baby, socking money away from day one to help secure the little one's financial future, only to find out 30 years later that it was all for naught.
On Tuesday, Bloomberg reported that Philip Barry, a money manager from Brooklyn, ran a 30-year Ponzi scheme that defrauded hundreds of investors, according to federal prosecutors.
Barry began accepting money in 1978. Each December, according to Bloomberg, Barry would figure a “guaranteed” rate of return for the following year, ranging from 12.55% to 16%, prosecutors said. When investors tried to withdraw money from their accounts, checks would often be returned due to insufficient funds. Or, in some cases, Barry ignored their requests altogether.
“‘Your house will always go up in value,’” Michael Weil, a lawyer for Barry, told jurors, according to the news service. “Philip Barry bought into that same myth, that you can’t lose money in real estate.”
3) Advising under the influence—Proving that even snarky financial writers aren’t immune from stupidity (what?), the Toledo Free Press reports that local radio personality Troy Neff, a former Toledo Free Press financial columnist, former FOX Toledo contributor and financial advisor, was charged last year with drunken driving.
Neff was pulled over at midnight after going left of center and almost causing a collision with a patrolman (ouch), the report stated. His alcohol level was .143. The legal limit is under .08.
The officer initiated a stop, and when the patrolman asked for Neff's driver's license and proof of insurance, Neff produced his license and his Visa card (possible bribe attempt?).
Neff had previously been charged with assault for his role in a 2008 road rage incident. He was dropped from Toledo Free Press' columnist lineup after admitting he had misrepresented his work in several columns. To add insult to injury, Neff was also charged in the latest case with not wearing a safety belt.
4) Madoff mini-me (redux)—Proving our assertion from last week that coverage of every Ponzi scheme, no matter how great or small, will now include a Madoff link, the “Madoff of Montco” was hauled off to await trial in West Conshohocken, Pa., on Nov. 1.
The Journal Register News Service reported that Robert Krikorian (rhymes with Kevorkian, another tough break) was originally free on bail, but had it revoked because he could’t seem to learn a lesson. Krikorian allegedly continued to “abuse his position of trust as a business broker by continuing his deceptive business practices” and defrauded two more victims, Assistant District Attorney John Walko said.
“He’s the Bernie Madoff of business brokers in Montgomery County,” Walko alleged, referring to Bernard Lawrence “Bernie” Madoff, the well-known New York stock broker and investment advisor imprisoned for 150 years blah, blah, blah…
5) Stopped cold in Buffalo—A Hamburg, N.Y., financial advisor has been arrested and charged with operating a Ponzi scheme (what, no Madoff reference?).
Local NBC affiliate WGRZ reports that Timothy J. Geidel, 48, was charged Nov. 7 with wire fraud and money laundering in Hamburg, located just outside of Buffalo.
The U.S. Attorney's office says Geidel is accused of defrauding more than 50 investors out of hundreds of thousands of dollars.
The station says Geidel worked as an investment advisor with Georgetown Capital Group, but was actually operating a Ponzi scheme. Geidel allegedly promised clients that he would invest their funds in higher-yield investment vehicles, but instead diverted those funds to his own personal bank account.
If convicted, Geidel could face up to 20 years in prison, a fine of $250,000, or both.
6) You again?—An Indianapolis ABC-TV affiliate said Tuesday a wealth advisor believed to be at the center of a $100 million real estate Ponzi scheme resurfaced in Indianapolis.
According to the station, Lawrence Leland "Lee" Loomis, 54, appears to be the driving force behind several real estate investment companies recently established in Indiana, according to the owner of a website design firm who met with Loomis last Friday.
"He claimed he was coming here because it's a prime market to flip homes," explained Will Hardison of Mediaplug, based in suburban Indianapolis.
Federal agents also believe Loomis is the mastermind behind a massive, multi-state real estate investment scheme that he ran out of a suite of offices in Roseville.
Hardison said Loomis offered to pay $12,000 for website and logo design work for Eagle Point Capital, Sierra Asset Partners and Welcome Home Indy, along with a credit repair company. Hardison became suspicious because Loomis appeared to be in a big hurry.
Over the weekend, Hardison ran a Google search of Loomis' name and discovered extensive coverage by the station of a fraud investigation underway in Northern California. On Monday, Hardison let Loomis know he was no longer interested in his business, even though it would have been the second-largest job his fledgling design firm had ever undertaken.
"If it's money that people have been scammed out of, I don't want it," Hardison said.
7) Feds in on the act—Feels like the plot of The Sting; can’t figure out who’s scamming who. A man who lost $3 million in a Ponzi scheme now says he's being ripped off again, but this time by the federal government. Local Orlando affiliate WFTV said a judge awarded the victim two Clermont houses to help recoup his losses, but found out Wednesday he may not be able to keep them.
The station reported that in a civil suit, the victim's attorney alleged Assured Capital Consultants, a company he says was run by Jennifer Hoffman, had scammed investors out of $28 million in an elaborate Ponzi scheme. A judge agreed and awarded two of Hoffman's Clermont homes, one worth $400,000 and another home worth $1.5 million and 5,000 square feet.
The attorney said that 45 minutes after the properties were deeded to the victim, he got a call the government had filed suit to seize the houses.
"I feel like we were defrauded twice. We expect the government to do the right thing," he said.
Uh, huh …