by Brian Mahany
Two former stockbrokers employed by Edward Jones are under investigation for selling investments in an alleged Ponzi scheme. That’s the big news today from InvestmentNews Daily.
Every large brokerage firm has the occasional bad apple – and with 12,000 brokers Edward Jones is one of the largest brokerage firms in the country. Because Edward Jones maintains so many small one and two person offices throughout the United States, supervising and watching over those offices is difficult. A quick review of records from the Financial Industry Regulatory Authority and state agencies shows Edward Jones with almost 200 pages of regulatory events!
In the current investigation, the two Edward Jones brokers allegedly sold a product not approved by the company. If reports are accurate, they sold clients investments in Gibraltar Partners Inc, an apparent Ponzi scheme. Selling something not approved by the company is called “selling away.” In many cases, the brokerage firm can be left holding the bag when investors want their money returned.
For its part, Edward Jones fired the two men and says it is cooperating with both authorities and customers who lost money. Whether those customers will get back their full investment is unclear.
Gibraltar Partners is part of a larger federal investigation that includes a company called Rahfco Funds. (In the interest of full disclosure, we are involved in the companion Rahfco case and agree that there are significant problems with the investments.)
Ponzi schemes and other investment frauds seem to occur on a daily basis. Even though Edward Jones knew noting of the activities of the two men, under federal and state law they can be held responsible for the actions of their agents and employees. That’s one of the reasons why doing business with a reputable brokerage firm is always a good idea. As long as the brokers were acting in the apparent scope of their authority, there is a good chance that any Edward Jones customers can get recover their losses from the company. According to the feds, Gibraltar may have caused $100 million in losses – something that the two men probably can’t cover.
What does “apparent authority” mean? If I purchase a stock from a stockbroker, there is probably apparent authority present even if the brokerage firm did not approve the stock or knew nothing of the sale. Purchasing a boat from a stockbroker, however, and it would be difficult in chasing the brokerage firm if the boat turned out to be a lemon. We expect brokers to sell stocks, not boats.
If you have lost money to a stockbroker or registered investment advisor and think that you were ripped off or given bad advice, contact us. In many cases we get back all or most of your investment and any other related losses. These cases can usually be handled on a contingent fee basis meaning you us nothing for legal fees unless we win.
Mahany & Ertl, LLC – America’s Fraud Lawyers. Offices in Milwaukee, Detroit & Portland. Services available in most states.