Are You Putting Your Trust (and Your Money) in a Money Manager or Dishonest Bilker?

By Kori Eskridge, Fall 2014 Intern

think On September 8, the SEC charged a Minneapolis-based hedge fund manager Steven R. Markusen and his investment firm with bilking investors out of more than $1 million dollars. The advisory firm was facing shrinking management fees due to the hedge fund’s poor performance. As a remedy, Markusen took investors’ funds to reimburse the advisory firm for fake research expenses. Adding insult to injury, much of the money ended up in Markusen’s personal checking account and was used to fund a lavish lifestyle including country club dues, boarding school tuition and a luxury car.  

carUnfortunately, investment bilking is not a new phenomenon. In 2013, a money manager in New York faced charges from the SEC of defrauding investors out of nearly a half-million dollars, using the money to fund expensive summer vacations to the Hamptons, casino junkets and a Bentley. In 2011, the SEC charged a financial adviser at UBS Financial Services, Steven T. Kobayashi, with bilking investors out of $3.3 million. He used the money for expensive cars, gambling and prostitutes. Kobayashi is now banned from performing any securities work or associating with any entities in the securities industry. He will also be responsible for paying back an undisclosed amount of monetary gains and penalties.

In 2010, a Southern California man faced criminal charges for bilking investors nationwide out of $39 million dollars. Richard Cohen and his son Daniel formed several sham companies and enticed investors with claims that the businesses were successful and profitable. The typical scenario involved salespeople telling potential investors that they could buy company stock from a widowed investor who was willing to sell the investment at a discounted price. The reality, however, was that the companies were not successful, the stock certificates were worthless and the majority of investor funds were going directly to the Cohens.

While investing is often a positive experience, it can also turn into a nightmare. Take time to educate yourself on possible investments, ask lots of questions about the product and the person suggesting or selling the product and pay close attention to any correspondence or statements received. With a little education and precaution, investing can be a beneficial and potentially lucrative experience. Click here for advice on ways to avoid being a victim of investment fraud.