Additionally, up to 17 percent of the U.S. adult population falls prey to some form of investment scam in any given year.

A significant part of financial success involves risk-taking. Therefore, when one is presented with a proposition that is lucrative yet does not seem like the stereotypical scam, they are more than likely to consider it.

While some deals are legitimate, some are frauds, unfortunately. Do you think you could be the victim of investment fraud?

This article will lay bare the most common warning signs and what to do if you’re a victim.

1. You Were Dealing With a Random Company

If the company you decided to invest in contacted you out of the blue to give you their proposition; that should have been the first give away of a potential scam.

Any time a random company contacts you – whether online, via the phone, or face to face -, always go online to check their authenticity.

2. You Have Been Rejected for Credit

If you typically have good credit, then you start getting rejected out of the blue, chances are your identity is being assumed and they are using it to finance their nefarious needs.

Part of involvement in any type of investment often involves giving the company your financial information. While this information is very personal, a legitimate company cannot steal from you since they have a lot to lose if you sue.

This is why fraudsters pose like legitimate business people. With that information, they can do just about anything. If you notice strange patterns in your credit file, chances are you are a victim of fraud.

3. You Are Being Rushed

A legitimate company will never rush you into making a decision, hand over personal information, or give you an unreasonable deadline within which you should fork out your money.

Fraudsters usually instill a sense of urgency to their deals so that you do not have the time to think it through.

If that happened to you, and you obliged, there is a good possibility you were dealing with scammers.

4. Your Bank Asked You for Personal Information

Banks will never call you to ask for your PIN or passwords. Thus, if you received a call from a person claiming to be from your bank asking for such information, they were fraudsters.

5. Bad Grammar in Email or Letter

If the letter or email that the individuals contacted you with had a significant amount of spelling and grammatical errors, it should have raised your suspicions.

Any legitimate company invests in professional writing services to ensure that their emails and letters are well-written and proofread.

A fraudster, on the other hand, might not be that thorough. Additionally, they might not be from within the country, thus English might not be their first language.

6. Websites Lacking Secure Links

Scammers go out of their way to pose as legitimate companies. As such, they might have professional-looking websites, complete with official logos. This could easily be duplicate home pages of actual companies.

To establish whether a website is legitimate, check to see if it has a secure link. This is usually symbolized by a padlock on the browser.

If the site you were directed to wasn’t secure, you were likely dealing with fraudsters.

What to If You Are a Victim of Investment Fraud

If you have fallen prey to investment fraud, you will need to contact a number of bodies to get help. These include:

Law Enforcement

Fraud is a criminal act. As such, you need to immediately notify law enforcement upon realizing you have been conned. This will allow you to get a police report, which could possibly help you to get your money back.

Additionally, it allows law enforcement to begin their investigations while the case is still fresh.

Your Financial Institutions

If you provided the rogue investing expert with your bank information, you need to contact the bank or any other relevant financial institution immediately. This will prevent the fraudster from accessing your funds.

The bank will work with you to determine the best course of action. This could involve stopping any payments, rescinding a wire transfer, as well as getting you a new account number.

Credit Bureaus

If the individuals were able to get your personal identifying information (date of birth, social security number, etc.), you will have to contact the credit bureaus and place a fraud alert on your credit reports.

This reduces the risk of the fraudster using your information to obtain new lines of credit.

Social Security Administration

If they have your social security number, contact the SSA by calling 1-800-772-1213. This will prevent you from being linked to any activities that the fraudster might use with your number.

The Business or Agency

If the individual used the identity of a legitimate business or government agency, ensure that you contact those entities as well.

These organizations are usually the last to find out that their names and reputations are being used to scam people.

Nonetheless, there is little the organization can do to help your case if it is determined that the scammer used a proxy site.

However, notifying them will allow them to help others from falling prey to the scam by posting a warning on their website.

An Investment Fraud Lawyer

If you were connived into believing that your investment would yield certain returns, then it fell through, you should consider getting a lawyer. You should never be lied to about the reality of an investment.

An attorney will help prove that you were conned so that you get the justice you deserve.

Getting Justice

Getting scammed by anonymous people on the internet is arguably understandable.

However, getting scammed by a financial advisor is something that one does not expect. This happens a lot; 492 advisors were barred from operating in 2017, and another 733 were suspended.

In case you have incurred losses due to investment fraud resulting from the actions of an advisor or broker, you have the right to sue.

The Doss Firm has a track record of helping fraud victims recover their losses. With over 45 years of combined experience, our lawyers will work with you to help you get the justice you deserve. Contact us today to learn more.

This is not Kelter’s first offense.  His FINRA BrokerCheck Report (CRD # 2787858) discloses two other customer disputes, including one in which the victim was awarded $346,800.00 in a FINRA arbitration case for alleged breach of fiduciary duty, negligence, unsuitability and misrepresentation by Kelter while he was registered with a broker-dealer named Securities Service Network, Inc. It seems likely that there are even more victims.

Kelter has not been registered with a broker-dealer since September 2013.  His registration history is as follows:

04/2007 – 09/2013      Berthel, Fisher & Company Financial Services, Inc. in Johns Creek, GA

01/2005 – 04/2007      VSR Financial Services, Inc. in West Palm Beach, FL

09/1996 – 02/2005      Securities Service Network, Inc. in Knoxville, TN.

Kelter has also done business through various other firms including:

Rare Coins of New Hampshire (Alpharetta, GA)

TMS World (Lake Worth, FL)

Jay Kelter (Alpharetta, GA)

Kelter & Co. LLC (Alpharetta, GA)

Kelter & Company, LLC (West Palm Beach, FL)

BEK Consulting, LLC (N Palm Beach, FL).

If you have lost money with Jay Costa Kelter, we may be able to help and would like to speak with you.  Call The Doss Firm, LLC, (770) 578-1314 for a free consultation.

Between May 2005 and August 2016, according to the article, Cody mismanaged the retirement savings of three victims, falsely assuring the victims that their retirement savings were secure, when he knew they were not.  By 2014 the retirement savings of two of the victims had vanished. Cody reportedly concealed the facts by sending the victims fraudulent account statements and tax documents.  In 2013, regulators had suspended Cody from acting as investment advisor, but he failed to disclose that fact to the victims.

Cases like this one often involve just the tip of the iceberg, and one would expect that there are more than three victims of Roger G. Cody.  The brokerage firms that were associated with Cody owed their investor customers a legal duty to supervise Cody and warn them of all the important facts that they learned about Cody.  Cody worked for the following firms over the years:

IFS Securities (2016)

Concorde Investment Services, LLC (2014-2016)

Westminster Financial Securities, Inc. (2010-2013)

Gunnallen Financial, Inc. (2005-2010)

Leerink Swann & Company (2001-2005)

Salomon Smith Barney, Inc. (2000-2001)

Merrill Lynch Pierce Fenner & Smith, Inc. (1997-2000).

If you have had any experience with Richard G. Cody, we would like to speak with you about it.  Contact The Doss Firm, LLC at (770) 578-1314.

RCNs are complex securities.  In addition to the risk of default by the issuer, RCNs contain embedded put options giving the issuer the right to not return the investor’s principal at maturity, but instead assign the underlying security (usually a stock) at maturity if the stock price drops to a certain level.  In that case, the investor is left holding a stock that may be worth much less than the price paid for the RCN.

RCNs are alternative investments that typically offer above-market yields.  They are often sold to income-oriented investors who are unable to realize a sufficient return in the persistent low interest rate environment in which we live.  However, most individual investors who purchase RCNs have no idea they can lose money on this investment.

According to the SEC, UBS sold approximately $548 million in RCNs to more than 8,700 relatively inexperienced retail customers.

Investors who have lost money in RCNs should consult with an attorney with experience in representing investors in securities arbitration.  The Doss Firm, LLC has such experience and offers a free initial consultation to investors who may have questions about any of their investments.

If you were a victim of this alleged fraudulent scheme, we would be interested in discussing representing your interests with the hope and expectation of recovering some or all of your losses.  We will evaluate your case at no charge.

As background, Mr. Sanders’ CRD reveals over 30 customer complaints for the same type of account mismanagement.  On December 26, 2014, Triad Advisors, Inc. terminated and discharged Mr. Sanders for “mismanagement of RIA related accounts” involving options trading.  (“RIA” means “registered investment advisor.”)

Many of Mr. Sanders’ clients were elderly and retired income-oriented investors.  They have suffered substantial losses.  They entrusted their hard earned retirement savings to Mr. Sanders, who, acting with discretionary trading authority, mismanaged their accounts.  Mr. Sanders breached his fiduciary duty by using a “one size fits all” investment strategy with all of his clients without regard to whether it was prudent or suitable.

Leavitt Sanders of West Point, Georgia, is a former licensed stockbroker and investment adviser who operated in Georgia and Alabama.  Mr. Sanders is no longer in the industry for mismanaging the brokerage accounts of numerous clients by excessive trading in high risk investments, including put and call options, and day-trading huge stock positions on margin.  The options and stocks (or stock indices) included Priceline.com, Amazon, the S&P500 Index, NASDAQ-100 Index.

Mr. Sanders was registered with Financial Network Investment Corporation (“Financial Network”) from November 1998 through October 2008; Invest Financial Corporation (“Invest Financial”) from October 2008 through January 2014; and Triad Advisors, Inc. (“Triad Advisors”) from January 2014 to December 2014.  While still with Invest Financial, Mr. Sanders switched clearing firms from Pershing to TD Ameritrade in May 2013.  Mr. Sanders was also the owner-operator of two investment advisory firms – Sanders Yearian Advisory Group, Inc. and Leavitt Financial Group, Inc. – and was associated with Capital Asset Advisory Services, LLC.

Given in the sustained low interest rate environment, many income-oriented investors have been steered by their investment advisors into oil and gas investments and other alternative or non-conventional investments.  However, non-traded investments like oil and gas limited partnerships are among the most speculative, high-risk investments available.  The category of oil and gas investments is one of the “Top Investor Threats” identified by the North American Securities Administrators Association (“NASAA”), which is the organization of state securities regulators.  They are often sold to investors by brokers and brokerage firms because of the high sales commissions paid to such brokers.

Please call us if you have questions about your oil and gas investments or other investments.  We offer a free initial consultation.  If based on that consultation we feel that further review is needed, we will analyze your situation and provide a recommendation on whether and how to proceed at no charge to you.  Cases are typically handled on a contingent fee basis – i.e., the attorney’s fee is a percentage of any amount we recover on your behalf.

According to the SEC Complaint, Durante had previously been sentenced to prison for perpetrating a multi-million dollar securities fraud.  Durante purchased VGTel as a shell company.  The SEC alleges that Durante assumed false identities in his dealings with investors (aka Edward Wise, Ted Wise, Efran Eisenberg and Anthony Walsh).  Investors were falsely told that VGTel was a publicly traded company that could rise in value to $50 per share quickly as a result of several major deals.  Unfortunately, VGTel was worthless, and Durante and his associates fraudulently manipulated the market to pump up the price of VGTel stock, according to the SEC Complaint.

Some investors sent their funds to companies controlled by Durante (either Zenith Estates or New Market Enterprises, Inc.).

Larry Werbel owns and operates Defendant Evolution Partners.  Mr. Werbel was associated with LPL Financial LLC from February 2009 to February 2011, and Summit Brokerage Services from March 2011 to April 2014.

Christopher Cervino was associated with Wilson-Davis & Co., Inc. from July 2012 to June 2013, and COR Clearing LLC from August 2013 to October 2014.

Broker dealer firms are required to perform due diligence on investments prior to their being recommended to clients, and are further required to take appropriate steps to supervise the associated persons who are brokers at those firms to ensure compliance with securities laws.  It certainly appears from the SEC Complaint that there were failures of both due diligence and supervision.

Investors who lost money in VGTel should speak with an attorney who is experienced in representing investors in securities fraud cases, and should do so promptly due to time limitations on filing claims.

According to the SEC, Jacob and IBS had about $18 million belonging to 30 client households, including Georgia residents, under their control from 2009 through July 2014.  The clients signed a “Durable Power of Attorney / Security Account Limited Discretionary Authorization,” which gave Jacob and IBS the ability to buy, sell and trade in the client accounts.  Jacob and IBS received $517,000 in advisory fees for managing the accounts, which included retirement accounts.  The accounts were held at large brokerage firms, which the SEC did not identify in its Order Instituting Administrative Proceedings against Jacob and IBS.

Jacob and IBS allegedly misrepresented and failed to disclose material information about the risks of his investment strategy and certain exchange traded funds (“ETFs”) that were used.  Clients were told that the strategy and the ETFs was low-risk or no-risk when Jacob had reason to know they were not. The SEC also charged that Jacob made false and misleading statements to clients about the profitability of his investment strategies. The ETFs included high-risk products like Proshares Short S&P500 and Proshares Short Russell 2000, which amounted to speculative bets that the S&P 500 and Russell 2000 would decline in value over the short term.  Clients lost nearly 50% of their investment in these products.

An investment adviser’s registration status can be checked for free on the SEC’s website at http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspx, as well as FINRA’s Brokercheck at http://brokercheck.finra.org/.

While Jacob and IBS may or may not have the ability to make whole the victims of their fraudulent scheme, the large brokerage firms certainly do.  Those brokerage firms had a duty to supervise Jacob and are legally responsible for any client losses caused by Jacob’s wrongdoing during his association with those firms.

According to the SEC, the Enforcement Division has engaged in a “data-driven initiative to identify potentially fraudulent trade allocations known as ‘cherry-picking.’” Through this process the SEC Enforcement Division was able to find that Welhouse purchased options in a master account for Welhouse & Associates Inc. and put off allocating the funds into his clients’ accounts until later in the day to determine if the securities would appreciated in value. The SEC claims Welhouse gained about $442,319 in ill-gotten gains allocated to S&P 500 exchange-traded fund. On average, a personal trade made by Welhouse had “a first-day return of 6.28 percent while his clients’ trades in these options had an average first-day loss of 5.05 percent.”

The SEC conducted a statistical analysis to determine if Welhouse’s profits could have been sheer luck or coincidence, but “after running a simulation one million times, the staff concluded it could not.” This process came about because according to Julie M. Riewe, Co-Chief of the SEC Enforcement Division, “Cherry-picking schemes can be extremely difficult to detect without an investor astutely noticing that something may be amiss and coming to us with a complaint about the adviser.”

Fraudsters are able to gain footholds in their senior victims by preying on the elderly’s vulnerabilities such as isolation, loneliness, trusting natures, relative wealth, and in some instances declining mental capabilities. They also use mirroring techniques in order to develop a false bond with their victims and also aid in extracting personal information from their victims. According to Consumer Report the amount of money swindlers have captured is roughly $30 billion annually. Unfortunately only 1 in 44 cases of elderly financial abuse are actually reported. According to the former head of the Manhattan district attorney’s Elder Abuse Unit and current general counsel for EverSafe (a fraud-monitoring service for seniors), “Victims are often deeply ashamed…They worry that if they’re viewed as vulnerable, they’ll lose their independence.” One study that was conducted by the Chicago Health and Aging Project showed that people who fell victim to financial exploitation were hospitalized at a greater rate than people who were not.

Some ways recommended by Consumer Report to avoid falling victim to financial schemes is to sign up for robocall interception services such as Nomorobo, opt out of commercial mail solicitations, have someone trustworthy help you pay your bills, vet all contractors, check financial adviser’s credentials, arrange for limited account oversight, set up an emergency plan and entrust someone to be your power of attorney, visit an elder law attorney. As a loved one visit your elderly often, help set up a limited account, and in extreme circumstances file for guardianship or conservatorship.

The NASAA report also shows that in 2014 the state securities regulators conducted 4,853 investigations and took 2,042 enforcement actions. Through such actions approximately $405 million dollars in restitution was returned to victims, $174 million in fines against defendants, and prison sentences totaling 1,629 years were given.

Unfortunately unlicensed individuals and firms are the most common among state securities enforcement with a reported 746 enforcement actions. It has also been found that 230 enforcement actions were taken against licensed broker-dealers, 190 actions against investment advisor representatives, 156 against brokerage firms, and 146 against investment adviser firms.

As of 2014, state action withdrew 2,857 securities licenses and denied, revoked, suspended, or conditioned an additional 728 licenses.

According to U.S Attorney Daniel Bodgen, the men told thousands of overseas investors that their investments were safely managed by a third party escrow agent in Nevada. Nevertheless the men are accused of using investors’ funds to pay for gambling, a private jet, and other personal expenses. The government alleges that this Ponzi scheme preyed on new enrollees’ money that they turned and used to pay early-stage investors and to give other investors incentive to take part.

According to the indictment filed by the U.S. District Court, the scheme was exposed in April 2013 after four years of operation and individually charges Fujinaga with three counts of money laundering. The document also seeks from the defendants the forfeiture of proceeds from the alleged crime. As a result the defendants could also face decades in prison if convicted.

Money placed in a Ponzi scheme is typically difficult to recover directly from the primary wrongdoers, as that money has often been spent. However, Ponzi schemes often involve a number of other players who may have both liability to the victims and the ability to pay damages. Victims should consult with an experienced fraud recovery attorney to discuss their options.

The SEC alleges that Gray Financial Group and Gray “made material misrepresentations to at least one client when asked specifically about the investments’ compliance with the law,” as well as, “misrepresented the number and identity of prior investors in the fund.”

Alternative investments are often complex, high-risk, high-fee investments. Georgia law requires that public pension funds invest no more than 20% of their capital in alternative investments; however, the investments sold to two of the Atlanta pension funds in this case caused them to exceed that limit. Georgia law also prohibits public pension funds from investing in an alternative fund unless there are at least four other investors at the time of investment, but there were fewer than four investors in the funds sold to its Atlanta pension fund clients. Georgia law further provides that alternative investment funds must have at least $100 million in assets in order to be purchased by public pensions, yet the funds in this case never reached that amount of assets.

Gray Financial Group collected over $1.7 million in fees from its Atlanta pension fund clients that in connection with the improper investments, according to the SEC.

According to the SEC, the national operators of for profit colleges and its two chief executives fraudulently concealed from ITT’s investors the negative financial impact on ITTof the two student loan programs called “PEAKS” and “CUSO.” ITT had provided guarantees against the risk of loss from non-performing loans that resulted in millions of dollars in liability for ITT. However, instead of disclosing these liabilities to its investors, ITT took steps to mislead them.

Those steps included, according to the SEC, making payments on delinquent student loans in order to “keep the loans from defaulting and triggering tens of millions of dollars of guarantee payments, without disclosing this practice.”

In order to further conceal its liabilities, the SEC alleged that IIT netted its anticipated guarantee payments against recoveries it projected for many years later without disclosing this approach or its near-term cash impact. In addition, the SEC charged, ITT failed to consolidate the PEAKS program in its financial statements despite ITT’s control over the economic performance of the program.” Finally, ITT and the executives reportedly misled and withheld crucial information from its auditor.

After two years of misleading investors, ITT finally disclosed the true extent of its guarantee obligations, which resulted in ITT’s stock value declining by approximately two-thirds, according to the SEC.

According to the SEC, Elm perpetrated a Ponzi scheme – in effect recycling new investor money to earlier investors, and using investor funds the funds for personal expenses, such as a $1.75 million home, luxury automobiles, and jewelry. In this way, Elm allegedly stole at least $17 million from unsuspecting investors. This kind of misconduct violates the anti-fraud provisions of federal securities laws and SEC rules.

The investors sent their investment funds to Elm by wire transfer or by mailing a check. Elm deposited the funds in various bank account that he controlled. In this way, Elm had custody and control over the investors’ funds, and was able to misappropriate the funds.

Investors should be wary of sending money anywhere other than to an account set up for them at a well-known, trustworthy financial institution. Normal operating procedure is for investment advisors to manage a client’s money held in an account at a reputable firm, which would have actual custody of the funds and safeguards in place to prevent the kind of theft alleged by the SEC.

Despite this oil-depletion story line, however, the sudden and sharp decline in oil prices was not really unexpected. According to Gregory Zuckerman, author of The Frackers, the U.S. experienced the largest crude oil production increase in history in 2012, and, in 2013, the U.S. increased daily output from 5 million barrels per day to 7.5 million – on a track to outproduce Saudi Arabia by 2020. As for natural gas, production increases have led to price declines of 75% since 2008. Better technologies like horizontal drilling and hydraulic fracking – a process for accessing oil and gas trapped in dense rock – have allowed these production increases and price declines to occur.

Oil and gas investment offerings have become more common in these days of low interest rates, as investors have been unable to generate enough income from bond interest and stock dividend payments. Also, state securities regulators have long warned that high oil prices have allowed promoters to generate interest in investments in energy-related business ventures.

Sellers of investments are legally required to be accurate and completely truthful in marketing investments, disclosing all important risks, and are prohibited from recommending investments that are unsuitable for the investor. But sellers do not always do that. Investors who lost money in energy-related investments that were either unsuitably risky for them, or whose sellers misrepresented or failed to disclose important risks, have valid legal claims to recover those losses.

UBS had sold more than $10 billion of the funds through 2012, according to the article. Investors have alleged fraud, misrepresentation and unsuitable recommendations against UBS and its brokers in connections with the sales. In addition, at least one UBS broker persuaded some investors to take out loans and invest the proceeds in the funds in violation of UBS policies. UBS has reportedly set aside millions of dollars to cover anticipated liability.

Separately, the Puerto Rican division of UBS Wealth Management Americas, has reportedly agreed to pay $5.2 million to Puerto Rico regulators to settle charges that the firm’s brokers improperly sold these funds to investors. Of the $5.2 million, approximately $1.7 million is earmarked for reimbursing 34 “mostly senior, low-net-worth” investors, who were heavily concentrated in the closed-end funds. The other $3.5 will be deposited into the commission’s investor education fund.

The Doss Firm, LLC is a Marietta, Georgia based law firm with over 40 years combined experience in helping investors recover losses resulting from unsuitable recommendations by brokers and other misconduct. If you have a question about your investments, feel free to give us a call at (770) 578-1314 for a free consultation.

Richard was associated with LPL Financial, which is a brokerage and investment advisory firm headquartered in Boston. Richards’ financial advisory firm, Lanier Wealth Management, LLC, which operated like a branch office of LPL Financial, is located in Buford, Georgia.

When the investor victims had money to invest, Richards would have them write checks to entities he controlled. The entities were named Blake Richards Investments and BMO Investments. Richards told his victims that he would cause the money to be invested, but he actually siphoned off the money and used it for his personal benefit.

One of Richards’ victims was a woman he had dated. Her father became another victim. Still another victim was a woman who received over $200,000 in life insurance proceeds when her husband had died of pancreatic cancer. Richards cultivated a relationship of seeming trust, going so far as to deliver pain medication to her husband during a snowstorm in his 4-wheel-drive vehicle.

Richards provided fictitious account statements detailing non-existent investments. At least one of the statements purported to be on LPL Financial letterhead. When Richards was questioned or challenged by a victim, he always had an answer. When one victim asked Richards why she had not received statements from LPL Financial, he told her that her accounts had not been “linked” properly. When another questioned him about the status of her supposed investments, Richards showed her a phony statement generated by an internet-based software program.

In addition to losing the money entrusted to Richards, one victim’s social security check was subjected to garnishment by the IRS, because of an improper IRA distribution that was caused by Richards, and which he promised to correct, but did not.

There are some lessons to be learned from this awful story. Investors should never give custody of their money to an individual or a business they do not have good reason to believe is legitimate and reputable. If you do not have the time and/or expertise to invest the money wisely yourself, you are probably better off obtaining advice from a fee-only financial planner (i.e., one who does not act as a broker or invest the money for you) and implementing the plan by investing in well-diversified stock and bond index funds, keeping an appropriate amount (a “rainy day fund”) in relatively safe and liquid investment like a certificate of deposit or money market fund. Money that you may need to access sooner in the next three years should never be invested in stocks or other volatile investments. To learn more, read books on investing by John C. Bogle, the founder of Vanguard mutual funds and the person widely credited with inventing index funds.

Any time you have a question about your investments – either proposed or already made – we would be happy to share our experience. Brokers and investment advisors have certain duties to investors that, when breached, give rise to legal rights to recoup investment losses caused by the breach. For many years now, we have represented investors in securities arbitrations against brokerage firms and financial advisers, helping them to recover losses in unsuitable investments. It is certainly possible to recover such investment losses in securities arbitration. However, we would prefer to help you avoid bad investments in the first place.

Issuers of private placement investments often employ unregistered brokers and financial advisers to sell them to individual (or retail) investors. The sellers of private placements typically receive outsized commissions, and thus do very well indeed. On the other hand, many investors who could ill afford it have lost a substantial portion of their life savings by investing in private placements.

The SEC recently published an Investor Alert identifying 10 red flags that an unregistered offering (private placement) may be fraudulent. The red flags include such things as promises of high returns with little or no risk; involvement of unregistered sales people; high-pressure sales tactics; amateurish, sloppy or no documentation; absence of the “usual suspects” involved in “legitimate” private placements (lawyers, accountants, etc.); the old “mail drop as corporate address” trick; cold call solicitations; and phony backgrounds of managers or promoters.

While it is true, as the SEC indicates, that some private placements may be used by legitimate businesses to raise capital, it is also true that private placements may be fraudulent investment schemes. Even if a private placement is legitimate, it is always improper for an investment adviser or broker to recommend that an individual investor invest a substantial percentage of his or her liquid net worth in such investments due to the risk of losing everything you invest.

The laws requiring registration of securities offerings are designed to protect investors, though that protection may be illusory. Generally, unregistered securities can only be sold to so-called “accredited investors.” For an individual to be considered an accredited investor, he or she must either have annual income of over $200,000 for the prior two years (or $300,000 jointly with a spouse), or have a total net worth of over $1 million above the value of the primary residence and any loans secured by it.

Now, it is still true that $1 million is a lot of money, but it is not nearly as much as it used to be back when these “accredited investor” rules were written. The “accredited investor” requirement is supposed to protect investors but, arguably, the income/net worth cut-off is too low. It is based on a false premise that anyone with $200,000 or $300,000 annual income or a net worth of $1 million is wealthy and, therefore, able to bear the loss of his or her entire investment, even if that investment is all or a substantial portion of that person’s net worth.

The bottom line is that private placements (even if they are not outright frauds) are almost always unsuitably risky and illiquid for individual investors. They should not be recommended to most individual investors by brokers or investment advisers, and would not be recommended were it not for the high sales commissions. If such an investment is presented to you, the best response is to “just say no.” If the opportunity was so great, venture capitalist investors would invest and the issuer would not need to be raising money from people like you and me. More appropriate, liquid, and less risky investment alternatives that do not pay the seller high fees or commissions are usually available.

If you are stuck in one of these investments, you may be able to get your money back by undoing the sale (a legal remedy called rescission). We would be glad to discuss your options with you, so feel free to give us a call.