The widespread variable annuities scam is made possible by industry obfuscation of the true costs and benefits of annuities.  Variable annuities have high fees, low flexibility and horrendous tax treatment.  They are sold based on insignificant tax or insurance benefits by registered representatives with strong financial incentives adverse to those of their clients. Typically, the broker's sales pitch is full of misrepresentations and omissions.  According to the NASD: NASD has become increasingly concerned about some members' unsuitable recommendations and inadequate supervision of transactions in deferred variable annuities...[C]ertain firms continue to engage in unacceptable sales and supervision practices regarding these products.  For instance, variable annuity sales have been the subject of more than 80 NASD disciplinary actions in the past two years.  These disciplinary actions involved a wide array of misconduct regarding the sales of variable annuity products, including...

It is easy to determine how a broker will respond to a crisis, quite easy. He will blame his customer. The broker will say “yes my advice was bad, but the customer is at fault for being such a schmuck as to follow my bad advice.” This is called “passing the buck,” or “blaming the victim,” and it is the standard response of the guilty party. If you doubt this, just look at children and study their reactions when accused of misbehavior. Better yet, talk to inmates at the local penitentiary. Are brokers any different? Yes, they are smarter. They have taken the “pass-the-buck and blame-the-victim” approach, and they have tried to turn it into law. Essentially, they have legalized the child’s standard response to accusations, replacing excuses with technical jargon. They use terms like discretionary and non-discretionary, and solicited and unsolicited. What do these mean? There are two general types of investments accounts: non-discretionary and discretionary. A non-discretionary account...

In England, a bartender in a tavern is responsible for the person who becomes intoxicated at his bar. At some point a bar tender has a duty to cut off the drinker’s supply of liquor. This was known in England as the dram shop law. At that time, taverns, bars, saloons, pubs and so forth were called dram shops. Over time, there was a movement to bring the legal concept of the dram shops cases into other areas of law. In the securities industry the equivalent of the dram shop law is called “financial suicide”. Stock brokers and other investment professionals have a duty to refuse unsolicited transaction when the transactions are inappropriate for a customer based on his or her financial condition. Department of Enforcement v. Robert Joseph Kernweis, 2000 WL 33299605 (N.A.S.D.R.); Stephen Thorlief Rangen, Release No. 38486, 64 S.E.C. Docket 628, 1997 WL 163991 (S.E.C. Release No); John M. Reynolds, S.E.C. Exchange Act Release No. 34-30036, 50 S.E.C. 805, 1991 WL 288500 (S.E.C. Release...

Investment fraud has become a common part of internet spam, accounting for about 15% of spam email messages.  To trap the investors attention, the spam promises huge PR campaigns, mergers, buy-outs and other buzz-words.  The spams often contain outlandish price projections. Unfortunately, the investment fraud spams do not advertise a web site and do not require the recipient to contact the spammer.  As such, they are anonymous and untraceable.  However, there are ways you can protect yourself.  You can be skeptical when reading your emails.  You can identify red-flags.  As stated above, heavy hype on an impending event in the stock is a good indication of a pump and dump style spam.  When you see multiple posts containing the same message, but different origins, you should be suspicious.  When you see nonsensical gibberish at the beginning or end of a post, you should be suspicious.  Also be careful when you see replaced characters meant to confuse spam filters. Two of the more...

We are told that investing in the stock market will help us get to our retirement dreams and let us live a comfortable life.  Once we retire, we feel that we should be taken care of and should have no worries.  The reality is much different.  With the tech "bubble" bursting in 2000 and the unfortunate events of September 11th 2001, the equity markets took a huge spiral downward.  From this we know equity markets are volatile, but there are safeguards that your broker could have instilled to prevent your portfolio from these unfortunate events. In this time period if you are living off of you retirement investments and the value is depleting, you don't know what you should do.  If you feel like a victim of your broker and brokerage firm, there is relief to get these losses back. Did your broker promise you an average 10-24% return?  It is generally inappropriate to guarantee or promise any particular percentage of return.  Brokers will sometimes use this as a ploy.  If you want a...

Thus far this series of articles has addressed the following issues: Elder Investment Fraud:  This is the process by which unscrupulous brokers single out senior citizens for fraudulent investment purposes.  This usually entails placing the elderly investor in grossly unsuitable investments, of an aggressive and/or high risk nature, for the purpose of generating high brokerage fees and commissions.  Affinity Fraud:  This is when a stock broker or financial adviser gains the trust of the customer by using his status as a member of a group--such as a church or community association--with which the customer is also affiliated.  The broker then uses the trust arising from group affiliation to defraud the investor. Reasons Why Seniors Are Victims:  Senior citizens continue to be vulnerable for a number of reasons.  They tend to be too trusting.  They tend to have less time and energy to pursue a legal claim.  They may not realize they have been defrauded due to a diminished memory.  They...

Broker-customer disputes are often resolved on issues revolving around different perceptions of truth and falsity.  At the end of the arbitration the decision may boil down to one question:  Is your stock broker/investment adviser a liar or a truth-teller?  You may think this a simple question, but it is not.  In the world of broker-dealers there is a gray area, an area where lies are supplanted by euphemism.  Lying is referred to as "fudging, twisting, shading, bending, stretching, slanting, exaggerating, distorting, whitewashing...selective reporting."  Schauer, Frederick and Zeckhauser, Richard, Faculty Research Working Papers Series: Paltering, John F. Kennedy School of Government - Harvard University (Feb. 2007). The newest term floating about is "paltering."  Paltering is "[t]he deliberate attempt to create a misimpression in someone by means other than by uttering a literal falsehood." Shauer & Zeckhauser at p.9.  Dr. Bennett Blum, an expert in this area says: "Paltering...

The purpose of this blog is to expose, one by one, the common methods brokers use to manipulate and deceive their clients. Today I want to discuss disclaimers. If you have recently opened an account with a brokerage house you know the general procedure. The broker promises you everything in the world. He tells you he will triple your money, protect your principal and help you achieve high rates of return. Excited at the prospects, you fill out the account opening documents. Like most people, you skim through the text, not paying much attention to the boring, technical jargon. In the process you pass over the carefully placed disclosure statements. Later, when your savings are depleted by the broker’s mismanagement, you file a complaint. In response, the broker shows you the various disclaimers in the account opening documents and the prospectuses. At this point you or your attorney will want to expose these disclaimers for what they really are: unenforceable, vague and meaningless....

Vestment Advisors Inc., a Shorewood, Minnesota-based consulting and training firm for the financial service industry, conducted a survey of 100 investment advisers and other financial services professionals. The survey found that "many financial advisers knowingly sidestep their firm's compliance policies and sometimes show little regard for rules and regulations," reported InvestmentNews.com. 45% said they were concerned that an investor would file an arbitration complaint or lawsuit against them for violation of compliance rules. 20 % of the surveyed professionals said they knew of someone who knowingly violated compliance rules and regulations. 21 of the registered representatives surveyed said they spent less than one hour a week on compliance, while 13% said they lost one full day each week on dealing with compliance issues. The blunt, matter-of-fact manner in which those surveyed confessed to violations is telling.  Consider the following examples, as reported the...

Each year a voluminous number of disciplinary actions are instituted against major broker-dealers for failure to supervise their own brokers and financial advisers.  The number of fines levied against broker-dealers is about to increase with (1) the abolition of the "Merrill" Rule, (2) the new rules governing supervision of variable annuity sales, which will start in 2008, (3) the ongoing crackdown on "free-lunch" seminars and phony, official-sounding titles, which was emphasised during the SEC Senior Summit on September 10, 2007. In this climate, one would expect the repeat offenders to change their ways.  One would expect them to adopt stricter compliance standards.  But that has not been the case.  Broker-dealers remain as defiant as ever.  In a recent article in The Registered Rep Magazine, entitled "The New Big Brother," contained the following caustic remarks: "Do you ever get the feeling that your compliance department is the securities industry's version of the Stasi -- the...