The dross continues to rise to the top in the Wall Street meltdown with the exposure of Marc Drier's and Bernard Madoff's combined $50.113 billion scams; the latter's ignominy eclipsed the former, in a swindling one-up-man-ship, out scamming the other.


 

In a Dec 16, 2008 press release, seeking to reassure investors, Fred Joseph, North American Securities Administrators Association (NASAA) president and Colorado Securities Commissioner, says, "While the vast majority of investment services providers are honest professionals, the potential for fraud should concern us all." Many investors have a sense of invulnerability, that loosing money happens to someone else and not to them, says John Gannon, senior vice president, Investor Education, Financial Industry Regulatory Authority (FINRA), and because of embarrassment, many do not report that they have been scammed. Investors should recognize, he says, and defend against the undue influence of persuasion tactics which involve promises on guaranteeing returns on investments, such as in Madoff's case, where from year to year, he consistently delivered positive returns, and which should be a red flag. Two other fallacies, he says, as influencers are: the social consensus or peer pressure, such as the country club or community, where if everyone seems to be profiting, then the stock is doing okay; and the "pump and dump," or scarcity or urgency types.
"Anyone, regardless of income, education, or profession, can become a victim when unscrupulous individuals use the growing field of financial advice to line their own pockets," Joseph says.
"The risk of fraud is magnified as investors seek higher returns in today's troubled markets." According to data provided by the NASAA, for the last three years, there were 8,365 investor related enforcement actions, $178 million assessed in monetary penalties and fines, $1.8 billion ordered returned to investors, and incarcerations totaling 2764.64 years. While diversification of investment portfolios is important, crucial is understanding the investment and knowing the level of risk of exposure or risk tolerance versus profit and loss, simply: how much can be invested and lost without affecting the investor's lifestyle? All transactions should be done through an established bank or legitimate holding company and the broker's level of interest in the investor's business should be clear. Is the broker asking appropriate questions, willing to explain and be detailed in the entire investment process, assisting with due diligence, explaining the risks involved, and providing verifiable printed information?
"An investor has to be cautious. Most people put money in for the long term. We advise people to go for less aggressive investments with low returns, which end up being more secure in the long run, but not totally immune to loss," says Noel Swift, a senior financial associate with Morgan Stanley (NYSE: MS). He advises knowing the broker and brokerage firm's track record, not investing with a small firm, instead with a well established firm such as Morgan Stanley or Goldman Sachs (NYSE: GS), and for those who want to invest their retirement or 401 (K) funds in IRAs, large brokerage houses such as Fidelity Investments (NASDQ: FVLIX, et al.) or Charles Schwab, Inc. (NASDQ: SCHW). Investors should conduct a thorough investigation of the particular investment product and the agent to ensure both are registered and in compliance, doing due diligence and checking the national or state industry self regulatory agencies, such as, the National Association of Security Dealers, the National Futures Association , FIRA with Brokercheck  and the Central Registry Depository, the NASAA in partnership with AARP, have launched an education component for seniors; with the Investing Online Resource Center, and the nonprofit Investor Protection Trust.
According to the NASAA Website, to avoid becoming a victim, a person should follow these basic steps: contact state securities regulators to verify legitimacy of investment vehicle, that it is registered in the state in which you live; contact Better Business Bureau to check on complaints against investment promoters and principals; deal only with financial advisers, broker-dealers or financial institutions with a proven track record, investigate adviser and sales person thoroughly; ask for written information on investment products, found in prospectus; don't take anything heard or read at face value, ask questions, check background; avoid investments promoted without downside or risk of loss; always stay in charge of your money; insist on a full explanation of investment recommendations and don't invest in something you don't understand; keep notes about conversations and meetings. Scams are carefully and cleverly planned and almost impossible to avoid but, knowledge of risk and loss, which offers preparedness, can be minimized. "I encourage people to do their homework and regardless of who is handling your investment, always be looking over that person's shoulder and checking on them," says Gannon.