By Susan Antilla, TheStreet, Sept 16, 2016.
If you’re interested in becoming more financially literate, it wouldn’t hurt to spend a few days hanging around with some securities regulators.
Regulators from the 50 states, Canada and Mexico gathered in Providence, Rhode Island for their annual conference this week, and their grim revelations would be enough to rouse even the laziest investor to do homework before handing money over to a broker or investment promoter.
The group, known as the North American Securities Administrators Association, or NASAA, shared stories of con artists selling fake securities on Craigslist, accountants and lawyers exploiting longtime clients’ trust to peddle scams, and a swelling number of complaints by elderly investors.
If you think you’re immune, you should know that some of the worst stories involved greedy investment professionals who took advantage of family members or long-time pals. Yeah, I know, that could never happen to you. I’ll bet that’s what they thought, too.
The lineup of defendants was so bad that even our 2016 presidential candidates might agree these guys and gals were a “basket of deplorables.”
Among the odious schemers I learned about this week was Minnesota insurance agent Sean Meadows, who ripped off 100 investors, many of them seniors, in a $13 million Ponzi scheme. According to court documents, he used funds from new investors to make payments to previous ones. He also spent proceeds on Las Vegas casinos, a new car, and — wait for it — $135,000 in visits to adult entertainment establishments. That’s a lot of lap dances.
Mike Rothman, commissioner of the Minnesota Department of Commerce and president of NASAA, said one of Meadows’ victims lost the money she’d counted on to pay for her cancer treatments. Meadows, who pled guilty to mail fraud, wire fraud and money laundering, was sentenced in June to 25 years in federal prison.
Regulators say a troubling trend in investor rip-offs is something they call “gatekeeper fraud.” People like lawyers and accountants who have longstanding relationships with clients are increasingly abusing the trust that’s developed over the years, pitching products that are useless or non-existent.
James E. Neilsen, a certified public accountant in Connecticut, allegedly promised returns of between 9% and 10.5% on $7 million in fraudulent securities that he sold to victims that included his accounting clients and his 93-year-old great aunt. One of his victims was a friend of at least 18 years, according to documents filed in the civil case brought by the state.
In a separate criminal case, he pleaded guilty to one count of wire fraud and was sentenced in January to 97 months in prison.
Neilsen’s promises of huge returns sound modest compared to another accountant who lost his license in 1996 but kept a tax consulting business going for years after that.