Help Recover Funds Stolen by Financial Advisors in PONZI Schemes and Selling Away
If you suspect that your financial advisor may have stolen your money, gather all documents and electronic records as quickly as possible. Call the law firm of Israels & Neuman as soon as possible so that we can assist you with investigating your situation and guide you through the process of recovering you money.
What To Do When a Financial Advisor Has Stolen Your Money
The Attorneys at Israels & Neuman, PLC are highly experienced in assisting investors with recovering funds that have been stolen by a financial advisor or invested in PONZI schemes.
If a financial advisor has stolen your money, the brokerage firm that they work for may be liable for your losses.
What is a PONZI Scheme?
A Ponzi scheme is a type of investment scam where returns are paid to earlier investors using the capital of newer investors, rather than from profit earned by the operation of a legitimate business. Named after Charles Ponzi, who became infamous for this scheme in the early 20th century, it relies on a constant influx of new investors to keep the scheme running.
Many people have heard of the “PONZI” Scheme because of infamous scammers like Bernie Madoff and Allen Stanford. However, most people aren’t aware that there are dozens, if not hundreds, of Ponzi schemes that are run throughout the country, albeit on a smaller scale. However, Ponzi Scheme victims are just as financially devastated as many of the victims in the Madoff or Stanford schemes, if not more.
A PONZI scheme is a type of investment scam where the perpetrator (sometimes a licensed financial advisor or stockbroker) uses funds from one investor to pay off another investor. They often use money from new investors to pay off previous investors, usually referring to these payments as “interest” or “dividends”, giving the investor a false sense of security that their investment is safe and generating income. Moreover, the schemer often uses investor money to fund a lavish lifestyle instead of investing the money as promised. Eventually, when the schemer is unable to secure additional funds from new investors, the money dries up, the scheme collapses, and investors are left with substantial losses.
Unfortunately, many Ponzi Scheme victims are solicited into these bogus investments by their financial advisor or stockbroker. In some cases, victims may be able to sue the brokerage firm that the advisor worked for or was affiliated with, because brokerage firms have a duty to reasonably supervise the activities of their brokers under FINRA Rule 3110 (and former NASD Rule 3010). If the brokerage firm fails to adequately supervise their advisor, they may be liable to the investor for their losses.
In the complex world of personal finance, financial advisors play a crucial role in helping individuals navigate investment strategies, retirement planning, and wealth management. However, the integrity of this relationship can be compromised when advisors engage in the practice known as “selling away.” Let’s explore what selling away is, its implications for clients and the industry, and how investors can protect themselves.
What is Selling Away?
Selling away occurs when a financial advisor sells securities or investment products that are not authorized or approved by their firm. This often involves private placements, alternative investments, promissory notes or products from companies outside the purview of the advisor’s broker-dealer. Some of these alleged products are nothing more than scams. While some advisors may offer these products with good intentions, often times they are connected to theft, fraud and PONZI schemes. Selling away should raise red flags at firm’s compliance department and as such, when a broker sells away, their firm can be held responsible for damages.
Why Selling Away Is So Dangerous
Lack of Oversight
When advisors sell products outside of their firm, they bypass the compliance, due diligence and regulatory scrutiny that typically accompanies approved investments. This can increase the risk of fraudulent schemes or unsuitable investments being presented to clients.
Conflict of Interest
- Advisors might be incentivized to sell away due to higher commissions or bonuses associated with sold away products. This could lead to a misalignment between the advisor’s financial interests and the client’s best interests.
Inadequate Disclosure
Clients may not be fully aware of the risks associated with the investments being sold away. Advisors might downplay these risks or fail to disclose essential information, leaving their clients vulnerable to losses.
Limited Recourse
If an investment goes sour, clients may find it challenging to seek restitution from the company itself. Often times, no one will be around to assist with managing the investment or answering questions.
What Requirements Are Placed on Firms to Prevent Selling Away?
The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have established guidelines to mitigate the risks associated with selling away. Advisors are generally required to disclose any outside business activities and obtain written permission from their firms before engaging in such practices. Failure to adhere to these regulations can result in severe penalties, including fines, suspension, or even expulsion from the financial industry. Firms are also required to supervise their advisors and brokers and search for red flags, to prevent selling away.
How to Protect Yourself As An Investor
Investors can take proactive steps to protect themselves from the pitfalls of selling away:
1. Do Your Research: Always investigate any investment opportunity presented by your advisor. Look for independent information on the investment and make sure you understand the risks involved.
2. Ask Questions: Don’t hesitate to ask your advisor about the product’s legitimacy, how it fits into your overall investment strategy, and whether it’s approved by their firm.
3. Check Credentials: Verify your advisor’s credentials and disciplinary history through regulatory databases, like FINRA BrokerCheck. This can provide insight into their professional conduct and any previous disciplinary actions.
4. Get Everything in Writing: Ensure that any agreements, disclosures, or risks associated with investments are documented. This can serve as evidence should disputes arise later.
5. Consider a Second Opinion: If you’re still unsure about a recommended investment, seek a second opinion from another qualified financial professional.
What Specific Rules Are in Place in the Financial Industry That Apply to Theft by a Financial Advisor, PONZI Schemes and Selling Away?
In the securities industry, stockbrokers and financial advisors are required to sell investment products that are approved and authorized by their brokerage firm. If the advisor wants to sell an investment that is not currently approved by the firm, they must get written permission from the firm prior to selling such investment, pursuant to FINRA Rule 3270. When the broker or advisor sells an investment that is not approved by the firm, that practice is referred to as “selling away.”
Unfortunately, some brokers and advisors “sell away” from their brokerage firm, and often the products that are “sold away” from the firm are either speculative or fraudulent. This often leads to rampant fraud by the broker who is selling away. Brokerage firms often claim ignorance of these transactions and deny any liability for investor losses associated with selling away.
However, just because a product is “sold away” from a brokerage firm does not necessarily mean that the brokerage firm can completely escape liability for the acts of its broker. The brokerage firm can be liable if the broker was acting as the actual or apparent agent of the brokerage firm. Additionally, brokerage firms have a duty to reasonably supervise the activities of their brokers and financial advisors, pursuant to FINRA Rule 3110 and former NASD Rule 3010. If the brokerage firm fails to adequately supervise their brokers, the firm can be liable for the investor’s losses, including in cases where the broker sells away from the firm.
The law firm of Israels & Neuman represents investors in FINRA arbitration proceedings in all 50 states. We have recovered millions of dollars for investors who have been victims of securities and investment fraud including “selling away” schemes, PONZI Schemes and financial advisor theft.
All of our arbitration cases are taken on a contingent fee basis, meaning you don’t pay us unless we recover compensation for you. Call one of our experienced attorneys today for a free and confidential case review.