ATTORNEY GENERAL ERIC HOLDER SPEAKS AT SOUTHEASTERN REGIONAL INVESTOR FRAUD SUMMIT

FROM: U.S. DEPARTMENT OF JUSTICE

Attorney General Eric Holder Speaks at the Southeastern Regional Investor Fraud Summit

Miami ~ Friday, October 12, 2012

Thank you, Willy, for that kind introduction, and for the great work that you – and your team in the United States Attorney’s Office – are leading here in the Southern District of Florida.

It’s a pleasure to be back in Miami this afternoon, and a privilege to join with so many critical leaders – including the outstanding U.S. Attorneys for the Middle and Northern Districts of Florida, Robert O’Neill and Pamela Marsh; the many dedicated investigators, law enforcement leaders, attorneys, and support staff who stand on the front lines of our anti-fraud efforts every day; as well as a broad range of critical partners – from the FBI, to state and local authorities, to the Federal Trade Commission, the Securities and Exchange Commission, and other agencies – as we explore strategies for advancing the Justice Department’s efforts to prevent and combat investor fraud; and to protect the rights, interests, and security of the American people.

Thank you all for being here. I also want to thank President [Eduardo] Padron, and the Miami Dade College community, for hosting this important Summit. And I want you to know that this entire community – and, especially, the victims of this week’s tragic accident – are in our thoughts and prayers at this difficult time.

Today marks the last of six regional summits that have been convened over the last twelve days in fraud "hot spots" across the country. And I’m grateful that we have such a large and diverse group gathered here. I’d like to extend a special welcome to the experts and allies from the AARP, FINRA , and other private sector, non-profit, and advocacy organizations – who are here to help drive this conversation forward. Finally, I’d like to recognize, and thank, Dr. John Gentile and Manuel Comella for courageously sharing their personal stories with us, for teaching us about the devastating impact that fraud crimes can have, and for raising their voices to help prevent others from being victimized.

Especially today – as our nation continues to recover from once-in-a-generation economic challenges, and as we move to confront a recent, and troubling, rise in investment fraud schemes – the urgency of this work has been brought into stark focus. And, as you’ve been discussing, the need to move both aggressively and collaboratively to help the American people safeguard their homes, their investments, and their hard-earned savings – and to bring fraudsters to justice – has never been more clear.

Recent estimates reveal that, since 2011, more than $20 billion has been lost to investment fraud schemes – and that, between 2008 and 2011, the incidence of these crimes increased by more than 130 percent. The FBI has indicated that these offenses represent an astonishing 60 percent of all corporate and securities fraud investigations that are currently being conducted. And their scope and complexity continues to increase.

From illegal kickback and market manipulation plots, to Ponzi schemes, business opportunity scams, affinity fraud, and "strike it rich" scams – we’ve seen that these crimes are as diverse as the imaginations of those who perpetrate them, and as sophisticated as modern technology will permit. Their costs can be measured not only in dollars and cents – but in lives turned upside down.

Far more compelling than any statistics I can cite are the stories you heard this morning – and thousands like them that play out every day in cities and towns across the country. Heartbreaking stories of bankruptcies, foreclosures, forced moves, and unexpected debt; of individual lives and families shattered by fraud; and of entire communities devastated by the actions of those who violate the law to take advantage of their fellow citizens – and, all too often, their own neighbors, coworkers, and family members.

You’ve all heard these tragic stories – and some of you have seen and experienced the consequences of investor fraud crimes firsthand. Not only do you understand what we’re up against, you also recognize that this problem has reached crisis proportions – that fraud is most frequently committed by seemingly trustworthy individuals who prey upon their fellow community members; and that these schemes often target senior citizens and other vulnerable members of society.

Even more importantly, you know – as I do – that, despite our record of success, and despite the Justice Department’s commitment to fighting investor fraud, government won’t be able to make the progress we need – and attain the results that the American people deserve – on its own. By taking part in today’s Summit, you’ve proven your dedication to helping us confront these challenges. And I want to assure you that you’ll always have a strong partner – and a steadfast ally – in our nation’s Department of Justice, and in your local United States Attorney’s Office.

At every level, my colleagues and I have made the fight against financial fraud a top priority. We’re more determined than ever to eradicate these crimes – and, alongside more than two dozen additional federal government agencies and private sector partners, we’ve made an historic commitment to advancing this work at the national level. We’ve also made remarkable progress.

Driving this effort forward is the Financial Fraud Enforcement Task Force, which constitutes the largest coalition ever assembled to combat financial fraud. I am honored to chair this Task Force – and we can all be encouraged by what it is enabling us to achieve. Since its inception in 2009, the Task Force has helped to leverage the tremendous strength of federal, state, local, and tribal partnerships; to streamline the investigative and enforcement efforts of multiple agencies that can operate across jurisdictions and state lines; and to advance cutting-edge strategies for recovering – and more effectively utilizing – precious taxpayer resources.

Already, this approach is paying dividends. In February, in cooperation with the Department of Housing and Urban Development, 49 state attorneys general, and other partners, the Justice Department reached the largest residential mortgage fraud settlement ever obtained – totaling $25 billion – with five of the nation’s top mortgage servicers. Earlier this year, the Financial Fraud Enforcement Task Force launched a Residential Mortgage-Backed Securities Working Group and a Consumer Protection Working Group to help take our comprehensive fraud-fighting efforts to a new level. On Tuesday of this week, I was proud to join HUD Secretary Donovan and other federal officials in announcing the results of an historic initiative that has helped tens of thousands of homeowners in distress. And just yesterday, I joined with Health and Human Services Secretary Kathleen Sebelius to convene the first-ever meeting of the interagency Elder Justice Coordinating Council – a group that will help guide national efforts to safeguard America’s seniors from neglect, abuse, and financial exploitation, including the fraud crimes we’ve gathered to discuss today.

All of this is only the beginning in our fight against investor fraud. As a result of the cooperation made possible by the Task Force – and thanks to the hard work of investigators, prosecutors, law enforcement officials, and analysts at every level of the Justice Department, in each of our U.S. Attorneys’ Offices, and across a variety of partner agencies and organizations, many of which are represented here – we’ve devoted substantial resources, and an unprecedented level of attention, to stemming the rise in investment fraud schemes. Since the beginning of last year, federal prosecutors have brought a total of roughly 500 cases involving approximately 800 defendants who have been charged, tried, pled, or sentenced because of their alleged involvement in these crimes. And we have secured a 97 percent rate of incarceration for convicted defendants, with many receiving sentences of 10 years or more.

These include a prison sentence of 50 years that was obtained against an individual who preyed on more than 400 elderly victims in a $40 million Ponzi scheme – as well as a sentence of 30 years against another perpetrator who used roughly $15 million that had been entrusted to him by more than 160 retirees to build a home for himself, buy jewelry and luxury cars, pay his friends and family, and make private investments of his own. Right here in the Southern District of Florida, just over two years ago, a high-profile attorney from Ft. Lauderdale pleaded guilty to running a massive $1.2 billion Ponzi scheme – for which he is currently serving a 50-year prison sentence. And last November, we secured a sentence of 20 years against another Florida man who orchestrated a $30 million fraud scheme that victimized more than 500 people.

Here in the Southern Florida, your United States Attorney’s Office has brought together a number of federal and state authorities to fight back against these crimes. To date, their efforts have resulted in charges against more than 100 defendants and over $1.5 billion in restitution ordered. And their work remains ongoing. In fact, just two days ago, Willy and his team – and their colleagues in the Consumer Protection Branch of the Justice Department’s Civil Division – announced yet another indictment charging 10 defendants with participating in a scam that allegedly defrauded thousands of victims – by persuading them to invest in a vending machine business, then failing to deliver on their promises.

Now, these are just a few examples of the significant results we’ve obtained – and the meaningful, measurable progress that’s been made – in our efforts to prevent, deter, and punish fraud targeting investors. Yet there’s no question that serious challenges remain before us. Significant threats are all too common. And it’s only by working together, engaging with relevant authorities at every level, and enlisting the support of an informed public – that we’ll be able to make the difference we need, and capitalize on the momentum we’ve built.

That’s why I made it a priority to be here this afternoon: not only to listen, to learn, and to hear from all of you – but also to pledge my strongest support, and my own best efforts, in carrying this extraordinary work into the future.

Today’s event may mark the last in this series of Regional Investor Fraud Summits – but it proves that our anti-fraud efforts are only just beginning. And, as I look out over this crowd – of dedicated colleagues and indispensible partners – that’s gathered here today, I can’t help but feel confident in where this work will lead us from here. Though this effort is the responsibility of us all, I pledge that this Department of Justice will do whatever is needed to ensure the outcome we want. Our work will not be easy and the completion of our task will take time. But if we remain focused, if we continue to work together, we can, and will, hold accountable those who would prey on our fellow citizens, bring relief to those who have been victimized, and make our nation more safe and more secure.

Thank you.

SEC CHARGES PAIR OF HEDGE FUND MANAGERS WITH LYING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Oct. 3, 2012 — The Securities and Exchange Commission separately charged a pair of hedge fund managers and their firms with lying to investors about how they were handling the money invested in their respective hedge funds. The charges are the latest in a series of actions taken by the SEC Enforcement Division and its Asset Management Unit against hedge fund-related misconduct in the markets.

In one case, the SEC alleges that San Francisco-based hedge fund manager Hausmann-Alain Banet and his firm Lion Capital Management stole more than a half-million dollars from a retired schoolteacher who thought she was investing her retirement savings in Banet’s hedge fund. In the other case, the SEC charged Chicago-based hedge fund managers Norman Goldstein and Laurie Gatherum and their firm GEI Financial Services with fraudulently siphoning at least $147,000 in excessive fees and capital withdrawals from a hedge fund they managed.

Since the beginning of 2010, the SEC has filed more than 100 cases involving hedge fund malfeasance such as misusing investor assets, lying about investment strategy or performance, charging excessive fees, or hiding conflicts of interest. The SEC issued an investor bulletin detailing some of those cases as examples of why investors must rigorously evaluate a hedge fund investment before making one.

"These hedge fund frauds have lured even the most sophisticated investors using the siren song of outsized returns or secured and guaranteed investments," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "As fraudsters increasingly capitalize on the cachet of hedge funds, we will maintain our strong presence in policing this industry."

In the past few weeks alone, the SEC has charged an Atlanta-based private fund manager and his firm with defrauding investors in a purported "fund-of-funds" and then trying to hide trading losses, charged a hedge fund adviser in Oregon with running a $37 million Ponzi scheme through several hedge funds he managed, and charged a New York-based hedge fund manager who touted a diversified and controlled-risk investment strategy for his fund while in reality misusing investor assets to prop up a failing private company. The New York-based fund manager also failed to disclose conflicts of interest, and he falsely overstated his firm’s assets under management in various magazine articles he authored.

"The most serious hedge fund frauds involve advisers who play fast and loose with investor money," said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit. "Investors can complement the SEC’s vigilant enforcement against hedge fund misconduct by becoming increasingly wary of hedge fund managers who boast extreme performance measures and asking well-informed questions about investment strategy, fees, and potential conflicts of interest."

According to the SEC’s complaint filed against Banet and Lion Capital Management in federal court in San Francisco, Banet led the teacher to believe that his hedge fund would invest in the stock market using a long/short equity investing strategy. Instead, Banet brazenly took the teacher’s investment totaling $550,000 and used it to pay unauthorized personal and business expenses, including his home mortgage, office rent, and staff salaries. Banet also provided phony account statements showing non-existent investment gains and listing an independent administrator that performed no actual work for the fund.

In a parallel action, the U.S. Attorney’s Office for the Northern District of California today announced criminal charges against Banet. The SEC acknowledges the assistance and cooperation of the U.S. Attorney’s Office, Federal Bureau of Investigation (FBI), and Immigration and Customs Enforcement (ICE).

According to the SEC’s complaint against Goldstein, Gatherum, and GEI Financial Services filed in federal court in Chicago, investors in the hedge fund were not told that its adviser removed various performance hurdles when calculating fees. Furthermore, inappropriate capital withdrawals were made from the fund. Goldstein, Gatherum, and their firm never told their advisory clients that Illinois regulators had stripped Goldstein of his securities registrations in 2011, barring him from providing investment advisory services in the state. But even after losing his registration status, Goldstein continued to make all investment decisions on behalf of clients, and he and Gatherum caused GEI Financial Services to violate compliance rules applicable to SEC-registered investment advisers.

The SEC’s investigation of Lion Capital Management was conducted by Sahil Desai and Robert Leach of the Asset Management Unit in the San Francisco Regional Office. John Yun is leading the SEC’s litigation. The SEC’s investigation of GEI Financial Services – which stemmed from an Asset Management Unit initiative to detect misconduct by pursuing registered investment advisers with repeated compliance examination deficiencies – was conducted by Andrew Shoenthal, Jeson Patel, Malinda Pileggi, Vanessa Horton, and Paul Montoya of the Chicago Regional Office. John E. Birkenheier is leading the litigation.

The SEC’s investor bulletin on hedge funds was prepared by the Office of Investor Education and Advocacy. It recommends that investors understand a hedge fund’s investment strategy and its use of leverage and speculative techniques before making the investment. It also explains the need to evaluate a hedge fund manager’s potential conflicts of interest and take other steps to research those managing the fund.

"Hedge fund investments generally perform differently, involve higher fees and less liquidity, and may carry greater investment and fraud risk than the mutual funds that investors are accustomed to," said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. "This investor bulletin describes the rigorous due diligence steps that financially-qualified investors should consider before making any hedge fund investment."

SEC REPORT ON BROKER-DEALER HANDLING OF CONFIDENTIAL INFORMATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC, Sept. 27, 2012 –The Securities and Exchange Commission today issued a staff report intended to help broker-dealers safeguard confidential information from misuse, such as insider trading. The report by the Office of Compliance Inspections and Examinations (OCIE) describes strengths and weaknesses identified in examinations into how broker-dealers keep material nonpublic information from being misused.

This report should help broker-dealers assess the effectiveness of their controls over sensitive information," said OCIE Director Carlo di Florio. "The report illustrates the types of conflicts of interest that may arise between a broker-dealer’s obligations to clients that provide confidential information for business purposes and the potential misuse of such information for insider trading or other improper ends. It also describes various methods that broker-dealers use to identify and effectively manage such conflicts, including information barriers that limit the flow of sensitive information."

Conflicts of interest and other issues of concern raised by the report include:
A significant amount of informal, undocumented interaction occurred between groups that have material nonpublic information and internal and external groups with sales and trading responsibilities that might profit from the misuse of such material nonpublic information
At some broker-dealers, a senior executive might have access to material nonpublic information from one business unit while overseeing a different unit that could potentially profit from misuse of that information, with few if any restrictions or monitoring to prevent such misuse
Some broker-dealers did not have risk controls to address certain business units that possess material nonpublic information such as sales, trading or research personnel who receive confidential information for business purposes; institutional and retail customers or asset management affiliates with access to material nonpublic information, or firm personnel who receive information through business activities outside of investment banking, such as participation in bankruptcy committees or through employees serving on the boards of directors of public companies.
The report also highlights effective practices that examiners observed at some broker-dealers, such as:
Broker-dealers sometimes adopted processes that differentiate between types of material nonpublic information based on the nature of the information or where it originated. In some cases, broker-dealers create tailored "exception" reports that take into account the different characteristics of the information
Some broker-dealers expanded reviews for potential misuse of confidential information to include trading in credit default swaps, equity or total return swaps, loans, components of pooled securities such as unit investment trusts and exchange traded funds, warrants, and bond options
Broker-dealers often considered electronic sources of confidential information and instituted monitoring to identify which employees had accessed the information
Broker-dealers often monitored access rights for key cards and computer networks to confirm that only authorized personnel had access to sensitive areas.
The types of issues identified in this report may be helpful to firms as they review their conflict of interest risk management programs. In particular, in any review of information barriers control programs, broker-dealers should be alert to changes in business practices and available compliance tools.

FOUR CHARGED BY SEC WITH USING HIDDEN MARKUPS AND MARKDOWNS

FROM: U.S. DEPARTMENT OF JUSTICE

Washington, D.C., Oct. 5, 2012 – The Securities and Exchange Commission today charged four brokers who formerly worked on the cash desk at a New York-based broker-dealer with illegally overcharging customers $18.7 million by using hidden markups and markdowns and secretly keeping portions of profitable customer trades.

The SEC alleges that the brokers purported to charge customers very low commission fees that were typically pennies or fractions of pennies per transaction, but in reality they were reporting false prices when executing the orders to purchase and sell securities on behalf of their customers. The brokers made their scheme especially difficult to detect because they deceptively charged the markups and markdowns during times of market volatility in order to conceal the fraudulent nature of the prices they were reporting to their customers. The surreptitiously embedded markups and markdowns ranged from a few dollars to $228,000 and involved more than 36,000 transactions during a four-year period. Some fees were altered by more than 1000 percent of what was being told to customers.

The SEC further alleges that when a customer placed a limit order seeking to purchase shares at a specified maximum price, the brokers filled the order at the customer’s limit price but used opportune times to sell a portion of that order back to the market to obtain a secret profit for the firm. They falsely reported back to the customer that they could not fill the order at the limit price. Meanwhile, the brokers made millions of dollars in illicit performance bonuses based on the fraudulent earnings they were generating on the cash desk.

The brokers charged in the SEC’s complaint are Marek Leszczynski, Benjamin Chouchane, Gregory Reyftmann, and Henry Condron.

"These brokers stole millions of dollars by overcharging customers for trades involving stocks with high trading volumes and price volatility, which are characteristics they wrongly thought would conceal their illicit pricing scheme," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "They underestimated the SEC’s ability and resolve to pursue such illegal schemes."
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Leszczynski and Chouchane. Condron has pled guilty to criminal charges.

According to the SEC’s complaint filed in federal court in Manhattan, the brokers were employed at an interdealer broker firm. Interdealer brokers typically operate only as agents and execute large volumes of securities trades on behalf of customers for low commissions. The cash desk where these brokers worked executed trades in U.S. and Canadian stocks, and customers were primarily large foreign institutions and foreign banks. The firm’s internal records show that customers were to be charged flat commission rates between $0.005 and $0.02 per share.

The SEC’s complaint alleges that the scheme spanned from 2005 to 2009. Reyftmann, Chouchane, and Leszczynski were sales brokers on the cash desk who were responsible for finding customers, developing relationships, and taking orders from customers. Reyftmann supervised the cash desk. Condron was a sales trader and middle-office assistant on the cash desk who entered orders received from the sales brokers and ensured the orders were executed.

The SEC alleges that the fraudulent scheme worked as follows:
Leszczynski, Chouchane, or Reyftmann received a customer order by phone, instant message, or e-mail and gave the order to Condron, who executed the trade.
Condron recorded the actual execution price on the trade blotter and informed the sales brokers of the execution.
Shortly after the trade was executed, Leszczynski, Chouchane, or Reyftmann examined other market executions around the time of the actual execution to determine whether the stock price fluctuated.
If the stock price’s fluctuation was favorable to the firm and sufficient to conceal the fraud from customers, the sales brokers instructed Condron to record a false execution price in the gross price field on their internal trade blotter.
Leszczynski, Chouchane, Reyftmann, or Condron then reported the false execution price and the commission to the customers.
The SEC alleges that the brokers further defrauded customers by stealing portions of their profitable trades and keeping them for the firm:
After receiving and executing a customer’s limit order to buy shares, Reyftmann, Chouchane, or Leszczynski looked for an opportunity to sell that same stock at a higher price than the price at which the customer’s trade was executed.
Leszczynski, Chouchane, or Reyftmann then instructed Condron to sell a portion of that customer execution back at the higher price.
Rather than properly recording the actual price and quantity of the order fill, Condron entered a partial fill into the trade blotter, keeping the secret profits for the firm.
Leszczynski, Chouchane, Reyftmann, or Condron then reported a partial fill to the customer, falsely stating that they were unable to fully execute the customer’s limit order.
Meanwhile, the SEC alleges that the brokers’ scheme enriched not only the firm but themselves as well. The four brokers received substantial performance bonuses totaling more than $15.6 million based, in part, on the fraudulent earnings generated by the cash desk.

The SEC alleges that Leszczynski, Chouchane, Reyftmann, and Condron violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and a permanent injunction against the brokers.

The SEC’s investigation, which is continuing, has been conducted by Mary P. Hansen (Assistant Director in the Market Abuse Unit in the Philadelphia Regional Office), A. Kristina Littman (Senior Counsel in the Philadelphia office) and Darren Boerner (Specialist in the Market Abuse Unit in the Chicago Regional Office). G. Jeffrey Boujoukos (Regional Trial Counsel) and John V. Donnelly (Senior Trial Counsel) in the Philadelphia office are handling the litigation.

The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation

TIPS ON SELECTING FINANCIAL PROFESSIONAL

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Investor Bulletin: Top Tips for Selecting a Financial Professional


Choosing a financial professional-whether a stockbroker, a financial planner, or an investment adviser-is an important decision. Consider the tips below as you make your choice. Also the third page of this document has a list of questions you can ask a financial professional whose services you are considering.

Tip 1. Do your homework and ask questions.

A lot of the information you’ll need to make a choice will be in the documents the financial professional can provide you about opening an account or starting a relationship. You should read them carefully. If you don’t understand something, ask questions until you do. It’s your money and you should feel comfortable asking about it.

Tip 2. Find out whether the products and services available are right for you.

Financial professionals offer a range of financial and investment services such as:
Financial planning
Ongoing money management
Advice on choosing securities
Tax and retirement planning
Insurance advice
Just like a grocery store offers more products than a convenience store, some financial professionals offer a wide range of products or services, while others offer a more limited selection. Think about what you might need, and ask about what would be available to you. For example, do you want or need:

Access to a broad range of securities, such as stocks, options and bonds, or will you mostly want a few types such as mutual funds, exchange traded funds, or insurance products?
A one-time review or financial plan?
To do your own research, but use the financial professional to make your trades or to provide a second opinion occasionally?
A recommendation each time you think about changing or making an investment?
Ongoing investment management, with the financial professional getting your permission before any purchase or sale is made?
Ongoing investment management, where the financial professional decides what purchases or sales are made, and you are told about it afterwards?
Tip 3. Understand how you’ll pay for services and products, and how your financial professional gets paid as well.

Many firms offer more than one type of account. You may be able to pay for services differently depending on the type of account you choose. For example, you might pay:
An hourly fee for advisory services;
A flat fee, such as $500 per year, for an annual portfolio review or $2,000 for a financial plan;
A commission on the securities bought or sold, such as $12 per trade;
A fee (sometimes called a "load") based on the amount you invest in a mutual fund or variable annuity
A "mark-up" when you buy "house" products (such as bonds that the broker holds in inventory), or a "mark-down" when you sell them
Depending on what services you want, one type of account may cost you less than another. Ask about what alternatives make sense for you.
And remember: even if you don’t pay the financial professional directly, such as through an annual fee, that person is still getting paid. For example, someone else may be paying the financial professional for selling specific products. However, those payments may be built into the costs you ultimately pay, such as the expenses associated with buying or holding a financial product.

While some of these fees may seem small, it is important to keep in mind that they can add up, and in the end take away from the profits you otherwise could be making from your investments.

Tip 4. Ask about the financial professional’s experience and credentials.

Financial professionals hold different licenses. For example, financial professionals who are broker-dealers must take an exam to hold a license, while state regulators often require investment advisers to hold certain licenses. Financial professionals also have a wide range of educational and professional backgrounds. They may also have certain designations after their names, which are titles given by industry groups that themselves are not regulated or subject to standards other than their own. If a financial professional has an industry designation, like "CFA," you can look up what it stands for at the "Understanding Investment Professional Designations" page on FINRA’s website at www.finra.org. Don’t accept a professional designation as a badge of knowledge without knowing what it means.

Tip 5. Ask the financial professional if he or she has had a disciplinary history with a government regulator or had customer complaints.
Even if a close friend or relative has recommended a financial professional, you should check the person’s background for signs of any potential problems, such as a disciplinary history by a regulator or customer complaints. The SEC, FINRA, and state securities regulators keep records on the disciplinary history of many of the financial professionals they regulate.
Check the background of your financial professional to learn more or to help confirm what he or she has told you:
For financial professionals who are brokers: you can find background information on the person and his/her firm at FINRA’s BrokerCheck website.
For financial professionals who are investment advisers registered with the SEC: you can find background information on the person and his/her firm at the SEC’s Investment Adviser Public Disclosure database.
State securities regulators also have background information on brokers as well as certain investment advisers. You can find your state regulator at www.nasaa.org.

Investor Checklist
Some Key Questions for Hiring a Financial Professional

Expectations of the Relationship
How often should I expect to hear from you?
How often will you review my account or make recommendations to me?
If my investments aren’t doing well, will you call me and recommend something else?
If I invest with you, how can I keep track of how well my investments are doing?
Experience and Background
What experience do you have, especially with people like me? What percentage of your time would you estimate that you spend on people with situations and goals that are similar to mine?
What education have you had that relates to your work?
What professional licenses do you hold?
Are you registered with the SEC, a state securities regulator, or FINRA?
How long have you done this type of work?
Have you ever been disciplined by a regulator? If yes, what was the problem and how was it resolved?
Have you had customer complaints? If yes, how many, what were they about, and how were they resolved?
Products
What type of products do you offer?
How many different products do you offer?
Do you offer "house" products? If so, what types of products are they, and do you receive any incentives for selling these products, or for maintaining them in a customer’s account? What kind of incentives are they?
Payments and Fees
Given my situation and what I’m looking for, what is the [best / most cost effective] way for me to pay for financial services? Why?
What are the fees that I will pay for products and services?
How and when will I see the fees I pay?
Which of those fees will I pay directly (such as a commission on a stock trade) and which are taken directly from the products I own (such as some mutual fund expenses)
How do you get paid?
If I invested $1000 with you today, approximately how much would you get paid during the following year, based on my investment?
Does someone else (such as a fund company) pay you for offering or selling these products or services?

PONZI FRAUD FOR SENIORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Brings Charges in $42 Million Offering Fraud Targeting Seniors

The Securities and Exchange Commission today announced charges against Bradley A. Holcom, of Welches, Oregon, and Jose L. Pinedo, of San Diego, California, in connection with a fraudulent scheme that sold $42 million of promissory notes to more than 150 investors located across the United States, many of whom are senior citizens.

According to the complaint against Holcom, he lured investors by offering them guaranteed monthly interest payments on purportedly safe deals. He promised that their funds would be used to finance the development of specific pieces of real estate, and that each investment would be fully secured. In reality, the investments were unsecured, and the same piece of underlying property was often pledged as purported collateral on numerous investors’ promissory notes.

In addition to his misrepresentations, the complaint alleges that Holcom was also running a classic Ponzi scheme. While Holcom used some of the investors’ money to develop real estate, he also relied on those funds to make interest and principal payments on promissory notes as they came due. Holcom also used investor funds for personal use and on unrelated business ventures. By 2008, as the real estate market declined, Holcom’s scheme collapsed. Investors lost principal in excess of $25 million.

The Commission also alleges that Pinedo, who served as Holcom’s bookkeeper and as an officer or manager of Holcom’s numerous corporate entities, routinely signed promissory notes and other false and misleading documents that were sent to investors.

The Commission alleges that Holcom violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Commission is seeking a permanent injunction, disgorgement plus pre- and post-judgment interest, and civil penalties against Holcom. Without admitting or denying the allegations in the Commission’s complaint against him, Pinedo has agreed to settle the matter, and consented to a final judgment enjoining him from violations of Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act.