Investor Fraud Out in the Open
by bobrichards ~ July 27th, 2010. Filed under: investor fraud.Years ago I attended a lunch of investment advisors–firms managing $500 million to $5 billion. The conversation led to investment performance and a guy at my table explained how he had a firm and for 10 years, their performance was lousy. I asked about his losing clients and he said it was not a problem. He went on to explain that they treated their clients well- took them to lunch, invited them to parties etc and clients stayed with the firm. Unfortunately, his commentary is representative of much of the industry you’re in. Adding value for clients hardly matters–as long we you keep the smoke and mirrors going, it’s fine. If that industry position sickens you, you don’t need to be part of it. But it takes some balls to part from the crowd.
During the dot-com era, the SEC fined the largest 10 securities firms $1.4 billion for selling knowingly trash stocks to investors, even issuing glowing research reports while sending internal memos about the inability of these same companies to ever earn money. A simple and clear case of investor fraud. It was clear to all who looked at the evidence that the issue was black and white, that the large securities firms basically say “screw you” to their clients. These firms really don’t care about creating value or morals of any sort. Do you work for any of these firms? If so, leave. The insurance industry of course is no better and the fines also total in the BILLIONS (just do a Google search on any large insurance company accompanied by the word “fine”).
Here’s another example at just how low these morals go. The securities firm I worked for had a large menu of annuities to offer our clients. But I complained once that the 5% commission should not be placed on the “grid” with other products because the grid offered me a 45% payout and the firm kept 55% of the commission. In the midst of this conversation, the guy from the annuity department let it slip that in fact, the firm received 6% from the insurance company and put 1% in its pocket before placing the other 5% on the payout grid. In other words, these firms not only don’t give a hoot about their clients, they are just as happy to deceive and steal from their employees. The good news—you can leave.
If you’re an insurance professional, you can be independent. If you’re an investment professional, you can operate on your own as an RIA. You really can operate with some ethics and add value for your clients.
When in the securities business, at the big firm, I always viewed my role as insulating my clients from the garbage that the firm peddled. I recall that Blackrock was issuing these closed end funds one after the other. They always looked like crap to me (and almost 2 decades later, Blackrock still peddles garbage). But the brokers in the office kept selling them. I think a small portion of these advisors did not know any better and others did not care what kind of crap they sold their clients. When I left the firm, every one of those Blackrock funds was selling for less than the issue price and some a LOT less. But their great marketing has allowed them to become the largest investment manager in the world by artfully peddling crap.
Unfortunately, the average investor is no smarter than Homer Simpson. These people have entered a game and they don’t know the rules. Much like the guy who has never played poker before, he is enticed by the sharks to enter the game and bet big. The sharks take the suckers money.
Don’t be passive about this and continue your complicit participation in this racket. If you wonder how this can continue, it’s because you and thousands of others come to work each day and participate in this fleecing of the investor and insurance buyer. As they say, you’re either part of the solution or part of the problem. If in fact you have a strong moral compass, I will show you in later posts some very direct ways to convert this to a business advantage. But for now, you need to plan on how to change your daily activities to be consistent with your values.
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July 28th, 2010 at 8:04 pm
very informative post…it really shows the mentality of investors.
August 5th, 2010 at 2:24 pm
Oh.. wonderful post which narrates all your experience and gives us good knowledge.As you mentioned ethics is much important in every profession we involve.
Thanks for sharing this!!
August 15th, 2010 at 2:51 pm
Fraud Become in all fields but as an investor its diffrent أفلام و ألعاب للموبايل because fraud here become a disaster cause money and investment isnt a game
August 16th, 2010 at 6:44 pm
Investor fraud is pervasive, all you have to do is look at the state of the economy that we are presently living in right now which is in absolute tatters because of financial institutions preying on unsuspecting people giving them loans that they couldn’t afford, packaging them into securities and then again selling these securities to the clients that they represent as “good investments”. These clients got sold on this junk because like you said they got meals, suck up to etc. What a shame!
August 18th, 2010 at 7:13 pm
Brilliant post – if you feel strongly about it then do something about it. Very inspirational.
August 21st, 2010 at 11:55 am
Discipline is probably the most important trait of successful investing. Most people when doing well in a position get greedy and stay too long. most performing poorly stay too long. You can read and try to decipher all the fundamentals and even get it right and still lose. As technology changes faster and faster long term investing will be very tricky. Companies will come and go as technology changes. Human nature will likely be the only constant
August 24th, 2010 at 7:46 pm
Thats the problem everybody trying to make a quick buck. Fruad is what landed us into this financial mess.
September 3rd, 2010 at 12:21 pm
Thanks for the post! Is there any online organization or a website where they look into these matters?
To some extent Publishing Networks even have click-frauds cases!
Sincerely,
SwayamDas2010
September 6th, 2010 at 6:02 pm
Yes, sure. Everybody is against the bad manner of doing business in general. But business is business and money doesn’t have a smell. I completely agree with author that one we should start to change bad situation but I thinks we should better look what we can in that situation and how to receive additional piece of a big pie of mad money? You should have a lot of power to change the rules of game.
October 7th, 2010 at 5:39 am
I agree with you that in insurance world you have more possibilities to be independent than in some other fields when are you working with investments. Very good point did not thought about it. And of course manners of people and trust is very important aspect but as in every business. Bus seems to me when people have taste of money they forget about their values.
November 3rd, 2010 at 5:32 am
It’s a that his isn’t new news to me. It seems like every day the SEC is settling a lawsuit with another company defrauding investors. I think that this financial crisis has opened a lot of eyes of people. No one cares about yor money as much as you do. The incentives just don’t line up for “financial reps” to grow your money as best as they can…
November 9th, 2010 at 3:48 am
Thanks for sharing your experiences! Fraud is something that intrigues me, not meaning I want to defraud people, but I can’t believe that people go so far to do it. The lengths they go to are limitless. Cool article!
November 18th, 2010 at 4:18 am
I am so glad that there are blogs like yours that finds these frauds and tells people about these scandalous acts. Keep it up.
November 21st, 2010 at 6:49 pm
Corporate ethics is a vital necessity for both business and society to function smoothly. if there is a webiste devoted to the identificatin and exposing coporate frauds it will be a blesing to all of us
November 25th, 2010 at 5:58 pm
The post has exposed the mentality of investors and also very informative
December 8th, 2010 at 5:32 pm
“Unfortunately, the average investor is no smarter than Homer Simpson. These people have entered a game and they don’t know the rules. Much like the guy who has never played poker before, he is enticed by the sharks to enter the game and bet big. The sharks take the suckers money.”
You hit the nail on the head with this the average investor has no clue about how the market works and really should be investing in something safer that they undestand.
December 14th, 2010 at 10:10 pm
To the Homer Simpson investors: Why are financial advisors so happy to sell you particular investing vehicles? Because they’re so great for you? Probably not. It’s probably great for them as described above. It’s all a great sales job aimed toward people with money. Remember the old saying “If it sounds too good to be true, it probably is.” That’s what that nagging feeling is!
How much of a person’s power does one give away when buying a home or a car? People are pretty involved in the process and concerned with those investments. People often spend a good amount of time investigating those items – days even… How did it become so different for so many people when it comes to investing their own money? Why do people sit down for one hour with an advisor and then hand over their life savings?
One way for financial advisor’s to be better is to educate and position themselves as someone who asks questions like the author here and take the time to do a better job educating investors.
December 21st, 2010 at 1:19 pm
Thank you for sharing all your experiences. Your post will definitely help people to be careful and I like the line “You really can operate with some ethics and add value for your clients”. This line really means so much
December 24th, 2010 at 3:38 pm
There’s only one word for all the scams, fraud, and cheating going around and thats just pure unadulterated greed. The blame should lie not only with the people who do it but also people who fall for it and lose their money. Because the motive for both is the same – make easy money.
December 24th, 2010 at 10:18 pm
Where ever theres money theres fraud. We have to get smart inorder to live safe in this world…
December 30th, 2010 at 10:36 pm
Excellent post. It’s especially important for people to understand that they need to protect their personal information in this digital age.
January 3rd, 2011 at 12:42 am
Fraud is such a terrible thing. We all have to end up paying for it in the end. Why you see such high prices in stores and for services out there – insurance fraud against businesses! Investors and bankers have gotten so greedy, ethics have gone right out the window… a very unfortunate thing!
Florida Keys Fishing
January 4th, 2011 at 3:21 pm
Investment fraud includes illegal insider trading. Insider trading becomes illegal when corporate insiders infringe their company’s privacy and secretly share or sell private information to an outsider.
January 18th, 2011 at 10:51 pm
Very touching and inspiring. I agree to the fact that if one is an insurance professional they can be independent. If they are an investment professional, they can operate on their own as an RIA. However, ethics are still key to anyone’s clients.
January 24th, 2011 at 12:44 pm
You think that it will never happen to you but people who fraud for a living are professionals and can con just about anyone. With the help of the internet, their demographics has increased exponentially so we need to be vigilant.
January 29th, 2011 at 3:13 pm
The average investor is faced with some difficulty in deciding whether his financial advisor provides sound financial advice.
February 1st, 2011 at 5:28 pm
i am also a strong votary of a strong business structure for success. If we succeed in building a good fabric ,rest would fall in place automatically. It would be sagacious to spend more time in getting the groundworks done for a better business plan and structure than to rue later
February 5th, 2011 at 6:22 pm
Yup!!!!
I agree. This post is really helpfull in order to come up with Fraud Investor .We have to get smart inorder to live safe in this world.
February 9th, 2011 at 11:02 am
Corporate ethics is a necessary entity for your company and your success. With the proper dissemination of tasks and guidance this will surely help in improving your company’s ethical value.
February 20th, 2011 at 9:41 pm
Thanks for the reminder. Investor fraud is getting more rampant nowadays and this article should prove helpful to a lot of people.
March 10th, 2011 at 7:35 pm
Thanks for this informative post, it should help people be aware of the amount of fraud going on
March 11th, 2011 at 10:22 am
The people are loosing their moral while becoming modern. Fruad is what landed us into this financial mess.Fraud is something that intrigues me, not meaning I want to defraud people, but I can’t believe that people go so far to do it.
—
Nancy
March 17th, 2011 at 9:15 pm
Investor fraud is a real problem.
March 22nd, 2011 at 9:14 pm
it amazes me the cheek of some investors! they deserve the $1.4 billion fine! only makes it harder to trust reputable firms so that’s a shame for them
March 25th, 2011 at 1:45 pm
Right on! Be a part of the solution, and always extend your goodwill. It can do wonders.
April 11th, 2011 at 3:48 pm
It’s truly stunning what goes on – thanks for the interesting expose. The current issues with the economy shows what happens when too few people stand against what they know isn’t right.
April 26th, 2011 at 1:11 pm
i’ve always believed that financial services companies use some kind of ponzi scheme .. that’s why i lack trust in them
May 16th, 2011 at 7:29 pm
thanks for sharing, a nice research on Investor Fraud Out in the Open, really helpful
May 20th, 2011 at 7:32 pm
Thanks for sharing your experiences! Fraud is something that intrigues me, not meaning I want to defraud people, but I can’t believe that people go so far to do it. The lengths they go to are limitless. Cool article!
axel
All recipes
September 15th, 2011 at 3:58 pm
good experience for sharing. it’s very useful. tks
September 18th, 2011 at 7:46 am
I agree, Fraud is what landed us into this financial mess.
Here in spain the situation is similar as you can see in Cubase
September 23rd, 2011 at 2:24 am
Fraud is such a terrible thing. We all have to end up paying for it in the end. Why you see such high prices in stores and for services out there.
October 1st, 2011 at 5:25 pm
everyone for itself those days … too sad
October 10th, 2011 at 8:37 pm
I agree with most of your points, esp the fact that most big investment firms do peddle cr*p and it is all about marketing and the way they position the product or confuse the investor with jargon. Although for the average individual just trying to make a living, it can be difficult to do something against the grain. Only the purest of heart will do that
October 12th, 2011 at 4:03 pm
In this day and age it is great to see the stand that you are taking. The world needs people like you.
October 21st, 2011 at 2:21 am
It is pretty sad that a company would knowingly sell someone a t”trash” stock. Maybe part of the problem is that people aren’t educated on these topics as you mentioned. That should change.
October 21st, 2011 at 11:47 am
I m a businessman and i invest my money on the business and some other places.So i want to know that where i should invest my money.
October 30th, 2011 at 4:36 pm
Thanks for sharing your knowledge.
Respect
November 7th, 2011 at 6:24 am
u know how that’s called- investor fraud, if i know, how to make money- will Ill tell U, forget about it-when the opportunity will be gone, ill tell
December 8th, 2011 at 2:44 pm
I agree with you that in insurance world you have more possibilities to be independent than in some other fields when are you working with investments. Very good point did not thought about it. And of course manners of people and trust is very important aspect but as in every business. Bus seems to me when people have taste of money they forget about their values.