Securities Fraud

Securities Fraud - 12/20/08

Kim: The big news last week was the world's biggest investment fraud. Over fifty billion dollars was lost in a gigantic ponzi scheme by New York investment guru, Bernard Madoff. Here to discuss ways to avoid being cheated in a fraud is attorney Michael Solomon.

Kim: Millionaires, real estate tycoons and other investment advisors all lost money to New York hedge fund manager Bernard Madoff. If all of these people, who are supposed to understand money can be swindled, how do the rest of us protect ourselves?

Mike: Whether you are investing millions of dollars or one thousand dollar, the way to protect yourself from fraud is the same. The Ohio division of securities website has a brochure called "Avoiding Fraud in Your Securities Investments" that was put out years ago. If all of the people who had invested had followed this brochure, they would be a lot richer.

Here are some basic, commonsense steps to prepare yourself:

1. Investigate Before You Invest: What are you buying? It is amazing but most of the people who invested with Madoff did not know what they were investing in. They just got their 10% - 15% annual rate of return and didn't ask questions. If they had asked, Madoff would not have told them. If your investment advisor won't explain the investment that is a high risk sign. Demand copies of your statements issued the mutual fund or other investment. Don't rely solely on reports prepared by your financial advisor.

2. Avoid Guaranteed Returns: The only guaranteed return is an investment backed by Uncle Sam. Everything else has risk. If you are promised a guaranteed return—run especially if it seems to good to be true. Madoff basically promised a steady annual return in good markets or bad.

3. Don't Be Pressured To Invest: Be suspicious of someone who tells you that you must buy now. Take your time and make a careful decision.

Kim: Why doesn't the government stop this sort of fraud before it happens?

Mike: There are all sorts of regulations on the securities industry, but apparently not enough. The Securities Exchange Commission, whose job it is to protect us, may be incapable of protecting us from securities fraud. Congress will be trying to figure out why the SEC cant do the job. Some of the reasons may be that the SEC may be understaffed or their may be too cozy a relationship between the SEC and the people they were supposed to police.

Apparently, over nine years ago, a securities executive complained to the SEC about Madoff, his high returns and possible fraud, and he was ignored.

The securities industry itself has an agency called FINRA that is supposed to police the industry. They seemed to have failed also.

Kim: If someone believes they have been cheated, what should they do?

Mike: You can contact the Enforcement Section of the Ohio Division of Securities or call an attorney who specializes in securities fraud. If you don't know an attorney who specializes in that are contact your attorney and ask him to refer you to an expert.

Kim: Thank you.