It’s been a year since we picked though the landscape of miscreant financial advisors to choose the worst among them. Unfortunately, a recent Google search turned up all too many that served themselves rather than their clients.
The list of Ponzi schemers, scammers and those who just flat out stole investors’ money seems endless. Reading about the cases that led to convictions since last September is a mind-numbing exercise. Where one case ends another seems to pick up. Unfortunately, we found the same thing when we first compiled this list in 2012.
Still, some stand out. Some got away with huge amounts of money until they were nabbed, others made victims of military veterans and those who faced a devastating natural disaster.
(Related on ThinkAdvisor: 12 Worst Financial Advisors in America: 2013)
In the end, the advisors that made our 12 Worst Financial Advisors in America: 2014 are paying the price: facing time in prison, as well possible fines and court-mandated restitution.
12. Redonda Russell
(Fort Worth, Texas)
Fraud: $316,000 from client accounts.
If a fraud occurs and no one realizes it …
Russell, the only woman to make this year’s list, used a medallion stamp so her fraud could be conducted electronically. In her scam, she closed 18 client accounts, eight of which were inactive. That made the fraud harder to detect. But someone did figure it out, after all. Russell, who worked for First Command Financial for more than two decades, faces up to 20 years in prison and $250,000 fine.
11. John Montague
Fraud: Stealing more than $900,000.
We include this one because it’s a cautionary tale for investors on more than one level. First, Montague promised guaranteed returns for the investments (which he admitted he was not licensed to sell). Guaranteed returns ought to be a red flag by now. Then there’s the manner of payment. Montague had his clients submit checks made out to him. Montague, who was licensed to sell mutual funds and annuities other than the ones he peddled in the scheme, faces 20 years in prison and a fine of up to $250,000.
10. Lynn A. Simon
Fraud: $1 million securities fraud
He couldn’t run far enough to escape the long arm of the law.
Simon made our list not for the amount he took or the creativity of scheme he operated, which was a Ponzi scheme, which relied on new investors money to pay off older investors who wanted out. Rather, Simon took it on the lam when his fraud was discovered and wasn’t caught until after he had made it all the way to New Mexico. In the end, he pleaded guilty and faces two to eight years in the big house.
9. James R. Holdman
Fraud: Multi-million dollar hedge fund losses.
The cover up is always worse than the original problem.
Holdman pleaded guilty to defrauding investors of millions of dollars through his Greenwing Capital Management hedge fund. He didn’t care who he stole from: among his victims were military veterans, retirees and survivors of Hurricane Katrina. Holdman’s troubles started with the stock market downturn of 2008. As his investments continued to sink, he told his clients their investments were doing fine. Because of that misrepresentation, he continued to collect fees and investors left their money with him. Eventually, all the money was gone. Holdman added another lie, telling clients their investments were all lost within a one-month period. He faces a maximum sentence of 40 years, as well as millions in fines and restitution payments.
8. Dana Giacchetto
Fraud: Bilked celebrities of $9 million.
Putting the touch on the rich & famous.
He did his scamming of the stars more than a dozen years ago, before Facebook and iPhones, but he gets a retroactive placement on this list because he was arrested for fraud earlier this year. Giacchetto was charged with running up $10,000 in food, liquor and dental charges on someone else’s American Express card. He faces 25 years in prison.
As for Giacchetto’s eariler shenanigans: He pleaded guilty in 2000 to defrauding Matt Damon, Cameron Diaz, Leonardo DiCaprio, Alanis Morrisette and others of $9 million. He was sentenced to 57 months in prison. Giacchetto had said he was an artist as a youngster, which probably appealed to other artists. The creativity of his earlier scam, though, wasn’t in the complexity but in the simplicity. Giacchetto placed some of his clients’ money in an account registered to his business, Cassandra Group, so he could spend it as he wished–simple; there were no fancy investment vehicles to gum up his withdrawals. 7. Frank Preve
(Coral Springs, Fla.)
Fraud: Soliciting $20 million for Ponzi scheme.
The henchman gets his due.
Ponzi schemes seem almost run-of-mill these days, but $20 million is still a lot of green. Preve was convicted of funneling money to a Ponzi scheme run by Scott W. Rothstein, the chairman and CEO of the law firm Rothstein, Rosenfeldt and Adler. The investment vehicle, run by the Banyan Group, received $20 million through Preve. The advisor, who pleaded guilty, faces up to five years in prison. Rothstein, for his part running the $1.4 billion scheme, was sentenced to 50 years in prison after his 2010 conviction.
6. Michael Zanetti, Frank Barecich, Evripedes Georgiadis and John Condo
Fraud: Untold millions nationwide scam.
Geographically, this was this year’s top fraud.
Developers from Massachusetts to California looking to make a bundle in large alternative energy and commercial projects thought the quartet named above had just the ticket. Although the total amount of their booty is unknown, several deposits of $300,000 to a million dollars each were supposed to be invested in a hedge fund based in Luxembourg. There was no such fund and the quartet spent the money. Barecich was sentenced to one year in prison and Zanetti received 37 months. The others are waiting sentencing.
5. Philip Mark Cain
Fraud: $1.4 million investment scam.
Using antique cars to hide his loot.
Cain rates high on our list for his creative use of the money he stole. Cain was sentenced to 51 months in prison after he pleaded guilty to taking money from investors who thought it would be used to purchase structured notes from Deutsche Bank. Instead, Cain deposited the money in a personal bank account. Cain had a thing for cars and used some of the money to repair classic autos. The cars were then auctioned for a total of about $978,000.
4. Brian Callahan
(Old Westbury, N.Y.)
Fraud: $96 million Ponzi scheme involving resort.
Robbing investors to try to save historic hotel.
Callahan pleaded guilty to charges that he misused money from 40 investors that was solicited for mutual and hedge funds. Callahan was brazen enough to try to rip off a fire department’s $600,000 scholarship fund. The firefighters became doubtful of Callahan and pulled their funds before the scheme collapsed. Instead, he used the cash to keep afloat a historic resort in Montauk, on New York’s Long Island. Callahan misused nearly $100 million to prop up the Panoramic View Resort and Residence, which he co-owned with his brother-in-law, Adam Manson, who was also indicted in the scheme. Callahan faces more than 24 years in prison. He was ordered to make restitution of about $67 million and officials are seeking forfeiture of the resort.
3. David Rose
(Coto de Caza, Calif.)
Fraud: More than $2 million from doctors and dentists.
A phony promise of medical breakthroughs.
Rose seemingly had the perfect bait to lure medical professionals to invest with him. For physicians it was the chance to make huge profits by backing emerging medical technologies. For dentists, it was developing a technique to remove children’s wisdom teeth without surgery. It was all a scam. In all, 77 investors forked over the money. Rose used it all for personal items, including an $80,000 boat, a $7,500 a month home and shares in the Green Bay Packers, among other goodies. That last item might be a tip off to Rose’s investing acumen: shares in the NFL do not grow in value and can only be sold back to the team. Rose faces 40 years in prison.
2. John Michael Babiarz
Fraud: $500,000 fraud, identity theft scheme.
Acting skills earn this advisor second place on our list.
Babiarz made up for the relatively small amount he stole from “clients” with the sheer chutzpah of his scheme. After being fired by Bishop, Rosen & Co. of Newton, Mass., he told his former clients he was now working for Fidelity Investments. That was a lie. Still, he was able to collect the retirement funds of some of the former clients, which he used for personal expenditures. He faces up to 20 years in prison and a fine of $500,000.
1. Gabriel & Marco Bitran
Fraud: $140 million investment scam.
The size of the fraud and egghead allure earns this pair the top spot on our list.
Maybe they were too smart for their own good. Gabriel Bitran, a former professor and associate dean of the business school at MIT, and his son bragged that their experience at Wellington Management and degrees from Harvard, had allowed them to create a computer program that would ensure fabulous returns of 18% to 23%. Investors poured $500 million into the pair’s hedge fund, GMB Capital. The money was placed in outside investments, including some with Bernard Madoff’s Ponzi scheme. More than $140 million was lost, though the Bitrans’ removed $12 million of their own money before it disappeared in the financial crisis. They were sentenced to two to five years in prison.
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