by Brian Mahany
It’s easy to pick on the SEC… just think Madoff and all the times that the agency failed to heed warning signs and whistleblowers in that case. Since then, the SEC has rolled out a powerful whistleblower cash award program and has initiated dozens of new enforcement actions. While we still criticize the agency – and the federal government as a whole for not bringing more criminal cases – we do approve of the SEC’s latest weapon in the war on fraud. Data mining.
Instead of merely relying on tips, the agency announced it is now collecting performance data and trying to spot frauds in the early stages. While “data mining” sounds cutting edge and highly scientific, the approach used by the SEC is quite basic. The agency is collecting rate of return and valuation data from hedge funds. A common fraud tactic is to overstate returns – no one wants to invest in something that is losing money.
A common theme in many fraud cases are the false promises of 10, 20 or 50% returns. Any fund may have a particular good year but very few investments can consistently beat the market year after year. And claims of returns like that in this economy are often false.
The agency is also looking to see if any of the key players in an investment or hedge fund have been in trouble before. It’s amazing how often we see scams where the same people engaged in virtually the same scam all over again. In this day of Google searches and on-line data that shouldn’t happen but it does. Very few people check out their investment advisor or stockbroker even though the SEC and the Financial Industry Regulatory Authority publishes this data on line for free.
Will the SEC’s new initiative work? it should. Already the agency says it has brought action against 3 hedge funds and 6 individuals. Two of those individuals have also been charged criminally, something infrequently seen in investment fraud cases.
Adam Wasserman, a well known blogger and attorney that represents brokerage firms, says some brokers are concerned they may be singled out for being successful. We respect Adam’s view point but think he is wrong. Honest brokers should welcome the review and increased enforcement efforts. The entire industry has a black eye and continues to be rocked daily by investment scandals. Weeding out the bad brokers and fund operators at the earliest possible moment should be welcomed by all.
If you lost your money in some type of investment scheme or scam, give us a call. Our asset recovery and fraud lawyers have recovered millions of dollars for our clients. For more information, contact attorney Brian Mahany at (direct) or by email at
Mahany & Ertl -America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan & Portland, Maine. Services available in most jurisdictions.