Every week we hear about people who gave money to a promoter offering “guaranteed returns.” About the only thing guaranteed is the loss of all or most your money. Unless you are putting money into government savings bond, nothing is guaranteed. (Many of our readers would question the safety of savings bonds!) One of the hallmarks of investment fraud cases is the use of the term “guaranteed” in promotional materials or sales pitches.
The week the government sued one financial advisor after he offered guaranteed investments. The SEC has charged John Marcum and his company Guaranty Reserves Trust with defrauding investors out of millions of dollars. Instead of investing in a stable, secure interest bearing security, the feds say Marcum used the money to fund a failed bounty hunter TV show.
Red Flags – Indicators of Investment Fraud
According to the complaint, Marcum told investors that they would receive a 20% rate of return. That should be the first red flag. In the current marketplace, banks are only paying less than 1% on 3 year CD’s. A 20% return is virtually unheard of today.
Another red flag is an investment that is marketed as “guaranteed.” Very little is guaranteed in the investment world, especially when the investment is offering a rate of return far above the market. The feds say Marcum told investors their principal was guaranteed. They claim he even told one investor his investment was federally insured.
To keep people from getting suspicious, Marcum sent statements showing consistent profits. Unfortunately, the money from investors wasn’t invested as advertised. The government says he used the money to fund a TV show pilot about bounty hunters; invest in a soul food restaurant and a bridal store; and to make payments on Marcum’s luxury car.
Unfortunately, the promoters of these scams are usually pretty good sales people. We knew one woman who is a vice president of a major U.S. national bank. She lost her money in a different Ponzi scheme that coincidentally offered 20% returns. The people with money to invest are usually very successful men and women. If you lost money in a Ponzi scheme or other investment fraud you certainly are not alone.
Marcum’s scheme began to unravel when redemption requests were coming in faster than new money. As is typical with all Ponzi schemes, the scam ultimately collapsed under its own weight.
The investment fraud charges against Marcum are civil. He has not been charged criminally. A copy of this government’s complaint is available here.
There are many lessons that can be learned from these stockbroker scam stories. Always be very wary of any investment that seems to good to be true. Just because someone tells you something is guaranteed doesn’t mean it is.
Second, always deal with reputable stockbrokers and investment advisors. The Financial Industry Regulatory Authority (FINRA) offers its Broker Check website that allows customers to see if their broker has ever been in trouble. A search is free and takes minutes. The SEC offers a similar service for investment advisors. Although everyone makes mistakes, a history of compliance problems or finding your broker is not properly licensed are huge red flags.
Investors should also look to see who employs the broker or advisor. It’s probably a safe bet that Marcum doesn’t have the funds to pay back all his investors. Had he worked for a large or well capitalized firm, investors would have a much better chance to get repaid.
By way of example, we are currently investigating or prosecuting cases involving Ellwood Jones and Anderson Scott Hall. While both men probably have limited funds to pay victims if found liable, both were affiliated with large brokerage firms that have deep pockets. That doesn’t mean the employer is always responsible but investors seeking relief certainly have more options.
If you have lost money to a Ponzi scheme or other type of investment fraud, give us a call. The earlier you bring a claim, the better the chances for recovery.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. Services available in many jurisdictions.
Post by Brian Mahany, Esq.