[Photo: Huffington Post]

by Howard Haykin

In a recent case, the SEC shut down a fraudulent investment adviser who targeted senior citizens in Southern California. The adviser, Paul Horton Smith, Sr., touted his purported investment expertise and allegedly promised guaranteed annual interest payments of between 3% and 10.5% to investors who invested in so-called “private annuity contracts.” Smith raised more than $5.6 million from at least 35 investors, but never invested those funds. Instead, he used $5.2 million to pay interest payments and to return principal to departing investors. ‘Last Standing Investors’ were “left high and dry” and likely lost their entire investments.

FREE WORKSHOPS, FREE MEALS, FREE CLIENT EVENTS.   Advertising on his company website and Facebook pages, and through direct mailings, Smith attracted prospective investors to financial workshops, free-meal seminars, and annual special events. His ‘Client Appreciation Luncheons’ and ‘Holiday Luncheons’ attracted as many as 200 to 230 attendees. Free meals and events led to one-on-one ‘complimentary’ follow-up meetings, where Smith discussed “our comprehensive approach” to wealth management, and devised an “income plan.” [Fortunately, most attendees came only for the free meals or entertainment.]

[For details on this case, click on … SEC Press Release and SEC Complaint.]

[For guidance on avoiding Ponzi schemes, click on Financialish's Avoiding Ponzi Schemes - Look for 'Red Flags'.]