Let’s face it… “Investment Fraud and Powers of Attorney” is not a very sexy title for this blog post. It’s effects, however, can be devastating. Recently the Maine Supreme Court upheld a ruling against an unlicensed stockbroker who drained his mother’s account of her life savings. While his mother was dying in a nursing home, Paul Ligor of Rockport, Maine spent $271,000 of her money. A trial court judge found that Ligor had even paid himself $26,000 for his mother’s care… after her death. How did he do it? By laundering money through an account in her name at Scottrade
Last month, the U.S. Securities and Exchange Commission barred Ligor from any involvement in the brokerage industry. Like his mother, the SEC determined that Ligor was managing the money of 8 clients without being properly licensed. How did he do it? Once again, Ligor had the clients open self directed brokerage accounts at a discount brokerage firm. At least one of those accounts was opened at Scottrade.
Ligor filed for bankruptcy and claims to have no money. That does not offer much solace to Mom’s legitimate heirs or to his 8 clients. The brokerage firm, however, may be responsible for the losses even though they were not directing the accounts.
A few smart crooks have figured out to slide under the regulatory radar by having clients open self directed accounts at a discount brokerage firm and then having those clients execute a power of attorney or trading authorization form. The brokerage firms claim they are not responsible since the person trading the account isn’t their employee or agent. Some arbitration panels have ruled against the brokerage firms and made them pay up, however. (Most investment fraud cases are handled through arbitration before the Financial Industry Regulatory Authority or “FINRA.”)
Brokerage firms have a responsibility to know their customers. Even if the firm isn’t making investment recommendations, these companies still owe some duty of care to their customers. Many states do not allow third parties such as Ligor to manage other people’s accounts without being licensed. Other states make an exception for a single account or a family member. Assuming that Ligor opened all 8 accounts at Scottrade, that event should have raised many red flags with the firm.
We know of one case when a lawyer for the victim didn’t even think to make an investment fraud claim against the brokerage firm. Holding a brokerage firm responsible for the actions of a person who is neither their employee nor agent can be tough but with the rights facts, it can be one.
Think you are the victim of investment fraud or lost money because of someone you know using a trading authorization to manage your account? Give us a call. Most investment fraud cases can be handed on a contingent fee basis and can be resolved in as little as 12 months from filing to hearing. (Court docketss are usually much slower.)