Securities Lawyers Blog
As discussed in Part I, the primary defense to preventing securities fraud is has been to “bar” the person from the industry and to instruct the criminal to stop committing fraud. Despite the evidence that the slap on wrist approach has been ineffective, some lawmakers continue to think barring individuals and educating the public is the best way to stop securities fraud.
Yet, according to Futures Magazine, during the hearing Sens. Susan Collins (R-ME) and Bill Nelson (D-FL) stressed the importance of “consumer education” to prevent future scams. If only we could convince senior citizens to spend their golden years reading CFTC and SEC news releases and memorize the names of hundreds of barred fraudsters each year maybe we can turn the tide in this fight – right. Great game plan. At least Sen. Claire McCaskill (D-MO) understood the disservice the education alone approach would provide the investing public by stating that “The first line of defense is not consumer education,” but rather “putting the crooks in prison.”
The hearing also featured testimony of a former fraudster, Karl Spicer. Spicer was convicted for ripping off investors in a metals scam. Spicer’s testimony also clearly stated that it is government agencies failure to instill fear into fraudsters that has resulted in no progress in investor protection. Without real world consequences, criminals merely go from scam to scam and will unapologetically continue to swindle. Spicer stated that “With all due respect to the civil authorities, the people that I have encountered…don’t really respect the civil authority bans.” In fact, “The gentleman I was with had a CFTC ban, he cooperated; he had a ban and he still went about doing business the very next day.”
Moreover, regulatory weakness has breed a whole legal and service industry playbook for scammers to continue business as usual. Fraud companies now work with lawyers to circumvent the law, operate businesses under false names, and detect investigations allowing criminals to shut down operations in one scheme to move on to the next.
One of the primary reasons securities regulators fail is that they are fighting hardened criminals with kid gloves. These agencies can bar individuals, shut down companies, level fines, and enjoin operations but they can’t prosecute and put people behind bars. Instead, agencies have to refer the matter to other agencies such as the Justice Department, which does happen. But because there is no requirement to prosecute financial fraud often times only high profile cases get picked up.
The number of news stories concerning former industry fraudsters who are up to their old – or really never ending – tricks is simply pathetic. For example, on June 3, 2014, The SEC filed an emergency enforcement action to halt a fraud and Ponzi scheme by Scott Valente who was charged with lying to clients about the success of their investments while stealing their money for his personal use. The SEC alleged that Valente and his firm, The ELIV Group LLC, fraudulently raised more than $8.8 million from approximately 80 clients by falsely claiming outsized positive returns and safe investments. In fact, it was alleged that ELIV Group earned no positive results at all and instead sustained consistent losses over the past three years. Meanwhile, Valente made substantial cash withdrawals of at least $2.66 million in client funds and spent the money on home improvements, mortgage payments, jewelry, and a vacation condominium.
Low and behold Valente had previously been “barred” from the securities industry. Nonetheless, Valente allegedly told his clients that he has had a 30-year record of investing experience and that he founded ELIV Group after leaving the “corporate financial industry” for greater “financial independence.” In reality, Valente twice filed for bankruptcy and started ELIV Group after the Financial Industry Regulatory Authority (FINRA) permanently expelled him from the broker-dealer industry in 2009 for engaging in misconduct against numerous customers. Apparently, being barred from the securities industry had no effect upon Valente’s ability to defraud investors.
While putting fraudsters in jail may arguable never stop people from trying to steal from investors at least the jail time will prevent criminals from continuing their schemes. The attorneys at Gana Weinstein LLP are experienced in representing investors to recover their investment losses. Our consultations are free of charge and the firm is only compensated if you recover.