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Investments - Private

No Contest - Elderly Customers Lose Everything in Broker's Investment Scam

November 5, 2019

by Howard Haykin



LIKE SHOOTING FISH IN A BARREL.    It was no contest. The broker had 30 years’ experience and he used high-pressure sales tactics to sell what he described as a “highly-sought-after private fund investment.” The customers, for the most part, were elderly and retired who largely invested in the purported private fund through their retirement accounts. In the end, at least 15 brokerage customers lost nearly $4 million.



John M. began on ‘Wall Street’ in 1977 and, along the way, he worked for reputable brokerage firms like Morgan Stanley, Dean Witter and E.F. Hutton. In 2006, John M. joined UBS Financial Services, and operated out of a branch office in Michigan.


John M. launched his investment scam in 2008 by telling customers they could invest in a fund that would allow them to: (i) diversify their portfolios; (ii) receive annual investment returns as high as 20%; and, (iii) experience investment growth potential that was better than the growth they received in their brokerage accounts. To pay for their investments, customers sold off their retirement accounts or borrowed against them and made checks payable to John M. All monies were deposited into the broker's personal accounts.


One customer’s account included her life savings and money from her deceased husband’s life insurance payout, which she intended to use to pay for college expenses for her 3 children. John M. was aware of this customer's financial needs when he solicited her investment.



However, John M. did not invest the customers' funds, and instead stole the funds for his personal use. To conceal the scheme, John M. falsely told customers that the funds in which they "invested" were performing well and that they should send more money. In addition, he told customers not to tell others about the purported fund investment, provided some of his customers with fake account statements reflecting fictitious returns, and paid over $400,000 in Ponzi-like payments to certain of the customers to keep the scheme alive.


In early 2018, the scheme unraveled when a concerned client contacted federal authorities after receiving a purported account statement that contained errors and misspellings. John M. was fired by UBS and banned from the industry, and in February 2019, he pled guilty to embezzling more than $3.7 million and was sentenced to 9 years in prison.



INVESTOR TAKE AWAYS.    John M. utilized his affable nature and significant industry experience to bamboozle his customers. The scheme was able to continue for 10 years because John M. was never challenged by his customers - they either were too afraid to challenge his representations, or they lacked the financial wherewithal to see through his apparent lies, representations and inconsistencies. 


Once again, elderly and unsophisticated investors are encouraged to seek out assistance in overseeing their financial assets - a trusted friend, family member or financial watchdog. Until such safeguards are in place, investors risk significant losses at the hands of dishonest brokers.