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Warn Your Clients Now: FINRA Does NOT Guarantee Investment Opportunities

The ingenuity of investment scammers has no limits. Now they are invoking the names and logos of regulatory agencies in order to entice their victims—your clients—to part with their hard-earned cash.  To help them stay safe, caution them to watch for solicitations that use a regulatory tie-in to promote an investment’s safety.

In a recent case, fraudsters used FINRA’s name and logo in correspondence, including a phony signature from FINRA’s top executive—to create the false impression it guaranteed the performance of what was actually an advance-fee scam.

“Financial fraudsters go to great lengths to appear legitimate, making it difficult for investors to recognize their ruses,” says Gerri Walsh, FINRA’s Senior Vice President for Investor Education. “That’s why we are telling investors flat out that FINRA does not guarantee investments, and our officers play no role in facilitating investment opportunities. We want people to know that and to understand how they can verify who the real FINRA is.”

According to FINRA, advance-fee scams typically involve criminals enticing consumers into sending in funds to pay for administrative or regulatory charges relating to a stock share buyback, which is either worthless or under-performing. Once investors send their money in, they never see it again or receive any returns from the stock buyback.

One way for your clients to stay safe from such schemes is to carefully examine solicitations for telltale signs of fraud. These include the use of quasi-legal language, repeated use of the word “guarantee,” and failing to correctly identify the regulator or its executives.

In a FINRA Investor Alert on regulator scams, the agency pointed to a recent attempt to defraud an investor. The scammer emailed the person a document supposedly from the FINRA CEO in an effort to build trust. Close inspection of the letter revealed improper use of the FINRA logo, incorrect executive titles, repeated use of the word “guarantee” (something FINRA would never do), and reference to the Financial Securities Rule-Making Board (FSRB), a fake agency.

In another fraud, scammers sent email pitches that purported to come from the office of FINRA President and CEO Robert Cook. They portrayed FINRA as a “recognized financial manager of the IMF” (false) and informed recipients that it has granted the release and payment of outstanding inheritance funds. The catch? The investors needed to fly to another country. But before they could, they needed to send in more personal information and a copy of their passports. Those who did would be at high risk of having their identity stolen, FINRA said.

How to help your clients avoid advance-fee, phishing, or other types of investment frauds? Encourage them to view every solicitation skeptically, watching for typos and other scam tipoffs. And they should be wary of any offer that touts guarantees or otherwise sounds too good to be true. If they’re not sure the offer is legitimate, encourage them to run it by you. Or they can use FINRA’s Scam Meter here.

To help your clients learn more about investment scams, send them to FINRA’s “Avoiding Investment Scams” page here.


For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

Scheming Brothers, Hedge Fund Phoney, Accelerated Benefit Scammer

 A former Morgan Stanley financial advisor was sentenced to two years in federal prison and three years of supervised release for defrauding a widowed client. The U.S. Attorney’s Office for the District of Oregon said that Gregory Walsh, a former Morgan Stanley Vice President, convinced the client to invest $1.1 million in California property. However, rather than make a legitimate investment, he conspired with his brother, Geoffrey Walsh, a bank executive, to put the client’s money into a business Geoffrey owned. At no point did Gregory provide his client with appropriate documentation. Geoffrey then sold off some of the property without the client’s permission in order to pay for personal expenses. The two conspired to do two similar deals that defrauded the client out of an additional $4 million. Geoffrey Walsh pleaded guilty on two counts and was sentenced to 30 months in federal prison and three years of supervised release.

A New York man has been charged with defrauding investors out of $5.3 million by claiming he was a successful hedge fund manager linked to the former Genovese drug store chain. According to prosecutors, Nicholas Genovese defrauded investors in his phony hedge fund for at least three years. According to securities regulators, he lied about managing $4 billion in assets for the Genovese family. He also falsely claimed he produced annual returns of between 30 percent to 40 percent, rather than disclose the fact that he actually lost money. During the fraud period, Genovese lost $8 million in client money. This did not stop him from spending $263,000 of their money on his lavish lifestyle, including being chauffeured around in a Bentley.   

A Virginia life insurance agent has been convicted on charges of defrauding a client in the amount of $182,000. According to authorities, Semyya Cunningham, 40, sold a life insurance policy to a friend. The contract included an accelerated benefit rider which allowed the insured to file for benefits in the event of a terminal illness. Several months after purchasing the policy, the insured was, in fact, diagnosed with a terminal illness. However, instead of helping her friend collect the benefits for which she now qualified, the agent altered the contact information for the policy to her own name so she could apply for benefits herself. After receiving the money, she then transferred it to several different accounts in order to prevent the insurer from reversing the transaction. Cunningham faces maximum jail time of 20 years. She will be sentenced in May 2018.

For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

Is whistleblowing getting louder in volume? It appears that way, what with Edward Snowden, Bradley Manning, and Julian Assange getting famous (or infamous) for releasing national security documents. They claimed to act in the name of transparency and justice, but others have called their behavior treasonous. However, for every Snowden, there are thousands more corporate or government workers who have witnessed wrongdoing and reported it to the authorities.

According to the Security and Exchange Commission’s (SEC) Office of the Whistleblower, the U.S. government received 3,001 tips in fiscal year 2012. Although it paid out only about $50,000 in cash rewards that year, the program will likely disburse much more over the years to come, as awareness of the program grows and more whistleblowers come forward. But even though whistleblowing is on the rise, it doesn’t appear to have put a dent in the deceptive sales practices that afflict many industries today.

A case in point is the financial advisory business, particularly those firms that provide wealth-and retirement-planning services to senior citizens. For decades, some advisors have taken advantage of seniors by selling them unsuitable or high-priced/low-quality annuities, by churning their accounts and by ensnaring them in Ponzi schemes. And now advisors have begun trolling for prospects using highly deceptive Internet ads, hurting consumers and creating a lot of future errors-and-omissions insurance claims in the process.

Stan Haithcock, an annuity specialist based in Ponte Vedra Beach, Florida, points to prominent Internet banner ads touting annuity investment returns of over 10 and even 15 percent. With 10-year Treasury bonds paying 2 percent or less, Haithcock says it’s highly unlikely that consumers will see double-digit rates anytime soon. Clicking on deceptive ads on his computer every day, Haithcock got angry.

“I think it’s time for agents to start ‘self-policing’ these non-compliant ads and contacting their state insurance organizations, national governing bodies and specific insurance companies,” Haithcock wrote on LifeHealthPro.com. “We . . . have to protect (our) great products and hold agents accountable when they blatantly cross the line with their advertising practices.”

Now Haithcock is calling for advisors who see such ads to send them to their state regulators. “Demand that they do their jobs by protecting consumers,” he says. “Imagine each state (regulator) getting thousands of screen shots of 10-percent annuity ads with the following four words: ‘Stop these ads now!’ My guess is that they would stop pretty soon.”

So, how do you feel about this? Do you find yourself in competition with advisors who make outrageous claims? Do prospects expect you to match the features, benefits, and costs of phony or deceptive products? Does this impose a financial penalty on your business, making it harder to compete? And how badly does this hurt your customers? Finally, does misrepresentation create a climate of consumer mistrust and eventual anger that lead to more errors-and-omissions insurance claims against advisors?

Bottom line question: Is it time to blow the whistle? Perhaps, but don’t do so without thinking through the consequences. One is potentially attracting regulator scrutiny by stepping forward. Such is our distrust of government institutions these days that many people would rather ignore wrongdoing than risk making themselves known to authorities. But there are equally powerful reasons to report deceptive practices:

  • One is to forestall further regulatory intervention. Wouldn’t you rather clean up your own industry than have government do it for you?
  • Another is to position yourself as an industry leader. Being known as a force for good can only help enhance your reputation. Hopefully, other advisors will view you as someone with integrity and follow your example.
  • Finally, blowing the whistle puts you on the same side as consumers, which builds trust and makes it easier to engage with prospects and convert them into clients.

For more information on errors-and-omissions insurance, please visit our E&O Headquarters at EOforLess.com.