While the headline involving a former Monroe County, Pennsylvania financial planner who was convicted of fraud recently might otherwise be enough to grab the attention of some investors, there may be a more significant lesson here, as Anthony Diaz of Scotrun, Pennsylvania had what appears to be a history and a pattern of conduct that illustrates some of the problems relating to retail investors who choose the wrong financial advisor, or what can happen to investors when the wrong financial advisor is not adequately supervised by the firm employing him.
First, the financial advisor in this example appears to have been terminated from five brokerage firms and then permanently banned from selling securities. It further appears that there were persistent customer complaints and alleged rules infractions.
As of now, he has since been convicted on all 11 counts charging him with wire and mail fraud. Unfortunately, this only comes after the financial advisor made millions of dollars in commissions and fees for himself and the firms that employed him over the years selling high-risk, high-fee alternative investments.
Guaranteed High Returns and Not Disclose Risk
Former customers alleged that the financial advisor had sold them alternative investment products by making promises and representations that guaranteed them high returns while failing to explain the risks that they could lose their money or that their investments were illiquid, long-term, and that their investment principal would be tied up for years.
Falsified Client’s Information
It appears that many of these investors did not fit the requisite profile of potential purchasers, and the financial advisor did not let that stop him, as former clients further accused him of falsifying his clients’ net worth to help justify making the unsuitable recommendations and putting them into inappropriate high-risk investments. It appears that by falsifying the investor information and paperwork, the firms that were responsible for supervising (and flagging or stopping) the recommendations, transactions might not have looked as closely, believing the investments were only a small portion of the investor’s liquid net worth.
No, the financial advisor here did not necessarily “steal” anyone’s investment. Still, by using the confidence of investor clients who are trusting their financial advisor to make appropriate recommendations and accurately assist them with any documentation, instead, the unsuspecting customers allegedly signed blank documents, where the bad actor then falsified their net worth, income, investment experience, and risk tolerance to make it appear they met the suitability requirements of the high-commission complex investment products he was recommending.
The financial advisor tried to pass these off as (at worst) some paperwork errors, but nothing that involved any level of criminal intent. Part of his defense in that respect was that he had purportedly relied upon the firm that employed, supervised, and controlled his activities (as well as the availability of investment products) as he argued that the only investment products he sold to his customers were all fully vetted and completely approved by the brokerage firm that he worked for, and, of course, not surprisingly, the financial advisor insisted that he thoroughly explained all of the material investment risks to his clients. The financial advisor’s defense further noted that all investments involve risks, and the money was lost in the investments.
According to the prosecuting attorney, that defense did not appear to hold up in the face of the number and frequency of the false statements and the fraudulent statements that were being made in this case.
While the financial advisor argued these were he-said, she-said disputes and the investor clients signed and initialed all paperwork agreeing to the investments and acknowledging the risks, that appears to ignore the fact that most investor clients are trusting their financial advisor to prepare the paperwork and to make appropriate recommendations that are in their best interests. With those inherent assumptions, of course, investor clients let their guard down and sign or initial the paperwork provided by their financial advisor.
This is likely not the first or the last example of a financial advisor who put his self-interest ahead of his client’s best interest, and, to make a large commission, never explained the documents that they signed and acknowledged, and convinced those clients to purchase an investment that was not appropriate for them.
The financial advisor, as well as his attorney, disagrees with the verdict, has a different recollection of the events, and believes that somehow the responsibility, as well as a consequence, should make all fall on the investor customers that trusted him. It’s difficult to square that position when one former client of the financial advisor, a 73-year-old retiree, said he invested nearly all of his retirement savings with the financial advisor after he was guaranteed returns of 8% and more. To somehow get that transaction through the firm at the time, it now appears the financial advisor had inflated his customer’s net worth to qualify him for the investment products, and then failed to explain the risk and failed to tell him his money would be illiquid and tied up for years. What’s more, most of the money is now gone.
What Should Investors Do If They Are In These Situations?
If you are an investor and you were coaxed into purchasing your investment based on promises of an 8% return or income stream, or you received inadequate (or non-existent) risk disclosures about your non-traded real estate investment trust (REIT), or non-traded business development company (BDC) investment, and you have incurred losses you should consider your options and next steps.
You can “wait and see” but keep in mind that statute of limitations and other potential laws, rules, or regulations may impact not only your ability to bring a potential claim at a later date, there may also be a practical impact in terms of the value of any possible claim if you choose a wait and see approach.
For some investors, the issue may come down to not just sales practices by the financial advisor, but the events leading up to that recommendation and transaction.
For example, the broker-dealer firm making the investment product available to its financial advisors had duties and responsibilities that typically include conducting thorough research and due diligence effort before making the investment product available for sale. Then, in some cases, those same firms further failed (again) by failing to properly and adequately supervise the recommendations and sale of the investments to the clients.
A note for senior, elderly, and retired investors who purchased risky, illiquid, alternative investments. Some recent cases involving the Financial Regulatory Authority (FINRA) regulators suggest that recommendations of risky, illiquid, private placement alternative investments similar in nature and complexity to non-traded REITs and non-traded BDCs are not always appropriate for investors who may need liquidity and who (based on their age or circumstances) are not appropriately invested in long-term, risky, illiquid investment products.
For many investors, one good option includes filing a FINRA customer dispute, which is an alternative form of dispute resolution that is private, and quicker and more efficient than traditional court litigation. Besides, there are typically no depositions, as it is almost entirely paper-based discovery.
You should contact experienced investment fraud attorneys who might be able to assist you with these types of disputes.
Experienced attorneys at Haselkorn & Thibaut, P.A., are available for a free consultation as a public service to any investor that is concerned. Call today for more information at 888-628-5590 or visit InvestmentFraudLawyers.com.
Tom, aka T Rex, is seasoned financial pro that cut his teeth on the Chicago trading oil futures in 1995. He has bachelor’s degree in finance and management. In less than 3 years he bought his own seat and set up shop on the exchange. For the next 10 years Rex traded his own account and some institutional accounts. In 2017, he decided to move to Florida and focus on educating traders and writing for financial websites.