BROWSE BY TOPIC
- Investor Protection
- Investments - Unsuitable
- Investments - Strategies
- Wall Street News
- Compliance Concepts
- Bad Brokers
- Investments - Private
- Rules & Regulations
- Bad Advisors
- Boiler Rooms
- Terminations/Cost Cutting
- General News
- Donald Trump & Co.
- Big Banks
- Regulatory Sanctions
Stories of Interest
- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
NEWSLETTERS & ALERTS
Investments - Private
Customers Lose on ‘Leap of Faith’ Into Broker’s Private Investment
by Howard Haykin
TAKING A ‘LEAP OF FAITH’ WITH THE BROKER. What happens when a customer succumbs to a broker’s solicitation and leaves the security of a broker-dealer's platform? Well, if they invest in a private company away from their brokerage account then, for all intents and purposes, the customers and their investments are entirely reliant on the broker’s integrity and business acumen.
Take, for example, a broker with the Independent Financial Group who convinced 2 customers to invest $75,000 in a small limited liability company that supposedly provided brand management and product placement services for athletes and entertainers.
- Broker controlled the company’s checking accounts; he spent $11,100 on personal expenditures.
- It’s uncertain whether remaining funds were spent as intended, on general operating expenses.
- Over a 5-year period, the company never amounted to much – retaining just one client, a professional skateboarder, who endorsed a single energy drink.
- Investors were never provided with any documentation to memorialize the investments or the terms.
- Investors lost everything - no return on investment, no repayment of their principal.
CUSTOMER TAKE-AWAYS. Documentation, Due Diligence and Verification were all lacking in this case. Customers were given no documents to evidence their investments. No comprehensive appraisal of the company was undertaken – particularly to establish its assets and liabilities or to evaluate its commercial potential. Finally, the company had no apparent infrastructure or means to ensure that funds were safeguarded and spent for business-related purposes.