There has been a lot of news lately about financial fraud being uncovered. It seems there is something new almost every week.
This is a scary and touchy subject for many because when you entrust your life savings, or even part of your life savings, you want to know that the person or company that is managing your investments is reputable. It appears investment scams are well hidden when times are good, but they come out of the woodwork during times of financial downturns.
One reason for this is during the good times, people are happy and leave their money in their investments in order to let them continue to grow, but when the economy takes a downward turn, like it has during the past year, investors get nervous and want to move their money. This request by investors requires the investment company to start to pay money out. When they don't have the money, the fraud comes to the forefront. As Warren Buffet has been quoted, "Only when the tide goes out do you discover who's been swimming naked."
The Financial Industry Regulatory Authority is the largest nongovernmental regulator for all securities firms doing business in the United States. It provides information on current scams over the Internet, by mail and telephone. As well, they provide a broker check system, such as online at finara.org, that allows the public to check on the proper licensing of investment professionals to see if there have been complaints lodged against them.
The Securities Investor Protection Corporation is another line of defense. The SIPC does not cover investment losses, but rather helps individuals whose money, stocks and other securities are stolen by a broker or put at risk when a brokerage fails for other reasons. Some investments are not protected by SIPC such as commodity futures contracts, limited partnerships that are not registered with the Securities and Exchange Commission.
SIPC also has limitations on how much will be covered, which is a ceiling of $500,000 per customer including a maximum of $100,000 for cash claims. Some firms also carry additional insurance to protect customers beyond the SIPC limits up to their total account values.
The SEC also offers a wealth of information on its Web site, sec.gov, to help educate investors.
The educated investor is less likely to be taken advantage of, so never hesitate to ask questions and do your own research.
A couple of other ways to fight fraud are do not be afraid to sleep on it, and if it sounds too good to be true, it just may be.
Allan Gregory is a local financial advisor.
Local attorneys holding free clinics to talk about laws
The South Carolina Bar Pro Bono Program will sponsor two free legal clinics in the Rock Hill area: 6:30-8:30 p.m. Feb. 21, bankruptcy law issues, featuring L. Showell Blades IV of Rock Hill at the York County Public Library, 138 E. Black St., and 6-7:30 p.m. Feb. 26, magistrate court issues, featuring James W. Bradford Jr. of Bradford and Bradford, PA, at the York County Public Library, 21 E. Liberty St., York. Call 803-799-4015 for information. -- staff reports
About BrokerCheck System
To find out if a broker or financial advisor has proper licensing or complaints lodged against him or her, visit finra.org -- select investor, on the right side under "most viewed" is the link for BrokerCheck or type in finra.org/InvestorInformation/InvestorProtection/ChecktheBackgroundofYourInvestmentProfessional/intex.htm.
Make sure you know the broker/financial advisor's full name. Be sure to ask your financial advisor how he or she can be found on the BrokerCheck system. This search can be used to verify brokerage firms, as well.