Professional Financial Adviser’s Pitch Goes Horribly Wrong to Professional Athletes

By Qudsia Shafiq, Fall 2017 IAC Student Intern

What can happen when a financial adviser meets deep-pocketed athletes who refuse to invest in his movie venture proposals? For one financial adviser, this meant ignoring the pros that told him no.

On May 6, 2016, the U.S. Securities and Exchange Commission (SEC) filed a complaint against Louis Martin Blazer III for allegedly repeatedly taking money from his clients under the guise of raising money for two film projects: “Mafia the Movie” and “Sibling.” The SEC charged Blazer, a Pennsylvania-based financial adviser with defrauding pro athletes and lying to SEC Examiners. The high-end, concierge firm allegedly took nearly $2.35 million from five different clients without their consent, all to invest in the two movie projects. Continue reading

Legal News – Affinity Fraud: Wolves in Sheep’s Clothing

By Abigail Warren, Fall 2017 IAC Student Intern

Earlier this year, the SEC  announced fraud charges against a Michigan pastor.  The pastor, and owner of a real estate company, allegedly targeted members of his congregation, along with laid off auto workers, promising to roll their money into IRAs and invest in his company.  The pastor allegedly collected 6.7 million from over 80 investors, even though he was not registered to sell securities, guaranteeing high returns and inflating the value of his real estate company. The SEC says he allegedly invested none of the 6.7 million, scamming groups in his community who entrusted their money to him.

Unfortunately, these allegations sound like affinity fraud, an all too common issue.   In affinity fraud, fraudsters prey on groups, such as religious organizations, the elderly, immigrants, retirees, and ethnic groups.  Often, they are a group member or they use a trusted member to recruit potential investors, the scam even unbeknownst to the friend “spreading the word.”  Affinity fraud is also gaining online presence, with fraudsters using social media sites to target online groups.  According to the SEC, most affinity fraud surfaces as Ponzi or pyramid schemes, soliciting fake investments for personal use.  Due to the nature of these “affinity” scams, the damaged often investors opt out of reporting the fraudster, preferring to handle it within the group.

Among affinity fraud’s characteristics, the SEC warns investors to look for “red flags” such as “spectacular or guaranteed returns.”  For tips on how to avoid affinity fraud visit the SEC and FINRA.

If you suspect affinity fraud contact the SEC or your state regulator.

Former Cavaliers Football Player was Allegedly Cavalier with $10 Million of Investors’ Money

By Michael Williford, 2016 fall student intern

The SEC has charged a former University of Virginia and Philadelphia Eagles football player with defrauding investors of approximately $10 million. The SEC alleges that Merrill Robertson, Jr. and his partner, Sherman C. Vaughn, Jr. used their the company they co-owned to prey on senior citizens, Robertson’s former coaches at UVA, and alumni—more than sixty people in all—by pitching investments in unregistered debt securities they promised would generate annual returns of up to 20%, all “while providing safety and security for [their] investors.”

The company’s website boasted of having numerous funds managed by experienced investment advisers. The reality was that the company was “functionally insolvent” due to bad investments in restaurants that had all failed by 2014. Instead of disclosing the truth to potential investors, the pair allegedly relied on the goodwill and trust Robertson had accrued as a result of his professional athletic career and the trust he enjoyed with former coaches and UVA alumni. According to the SEC, the two men spent lavishly on themselves to the tune of $6 million, using $4 million they convinced later investors to pony up to pay early investors, in what the SEC complaint alleges was basically a Ponzi scheme. The SEC and FINRA have repeatedly warned investors generally, and senior citizens in particular, of the dangers associated with relying on personal relationships and the reputation of the broker in deciding whether or not to invest.

In the case of Robertson and Vaughn, neither had much investment experience. According to BrokerCheck, the website that allows anyone with an internet connection to do a basic background check on a broker, Robertson had only one year of investment experience, Vaughn was not registered at all, and their company, Cavalier Union, does not appear anywhere in FINRA’s databases. This simple tool could have potentially saved investors millions of dollars had anyone bothered to look.

The take-away for investor should be that they must do their own homework before investing; that there are simple tools available that can shed a lot of light on a broker’s claim; and that if an investment sounds too good to be true, it probably is.

Robertson, Vaughn, and their company used an important term in perpetrating the fraud on their customers: “investment adviser.” In a future post, I’ll explore that term in more detail—the legal requirements investment advisers are subject to, why those requirements should be of paramount importance to investors seeking financial advice, and why an investment adviser is not necessarily the same thing as a broker. Stay tuned.

The SEC complaint can be viewed here. Federal prosecutors in Virginia have announced Robertson will also face criminal charges in connection with the fraud.

FINRA’s Military Spouse Fellowship A Success

By Jason Robinson, Fall 2015 Student Intern

FINRA Military Spouse LogoThe FINRA Foundation Military Spouse Fellowship program started in 2006. Since then 1,360 fellowships have been awarded to military spouses. Each fellowship covers the costs associated with AFC (Accredited Financial Counselor) training and testing. Fellows commit to completing their courses and working in the financial counseling field serving their communities for up to two years. Continue reading

Affinity Fraud in Action: Ex-Marine Allegedly Targets Fellow Military in Hedge Fund Fraud

By: Brittany DeDiego, Fall 2014 Student Intern

military3Some fraudsters take advantage of their position in the military to lure other military personnel into investment schemes. This is known as affinity fraud. For example, on August 6, 2013, a court granted the SEC’s request for an emergency court order to stop a hedge fund investment scheme by Clayton Cohn, a former marine living in Chicago where he had been allegedly defrauding his fellow veterans, current military, and other investors out of millions of dollars. Cohn’s hedge fund management firm Market Action Advisors raised nearly $1.8 million from his various investors, but he allegedly invested less than half of that money and used more than $400,000 of investor funds for his own personal expenses, including a mansion, a luxury car, and large tabs at high-end nightclubs. Cohn allegedly lied to his hedge fund investors about his use of the proceeds, his success as a trader, the performance of the hedge fund, and his personal stake in the hedge fund. The SEC alleges that Cohen in fact only invested $4,000 of his own money. Continue reading

Wednesday’s Word: Affinity Fraud

By Dylan Donley, Spring 2014 Graduate Research Assistant

Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious, ethnic, or military communities, the elderly, or professional groups, by pretending to be or actually being a member of such groups. Affinity fraudsters seek to manipulate the trust, friendship, and esprit de corps found in close-knit groups and use it to their advantage to sell fraudulent investments. In some cases, affinity fraudsters even enlist respected community, religious, or military leaders from within a group to spread the word about a scam and convince other members that a fraudulent investment is legitimate.

For more information about affinity fraud, read more here, here and here.

Friday’s Fraud – Affinity Fraud: Scammers in Sheep’s Clothing

By Benjamin Stubbs, Spring 2014 Student Intern

sheepWe’ve all heard the story about the wolf who dressed as a sheep to get an easy meal from an unwary lamb. Unfortunately some disreputable brokers, and people acting like brokers, have used this strategy to steal money from unsuspecting investors. This type of scheme is known as affinity fraud.

Continue reading