Investment Adviser Put His Own Interests First

Apparently not everyone received the memo. The gist of it is something like this: BE CAREFUL WHEN CHOOSING AN INVESTMENT ADVISER.

One crime story that recently came across the desk is about an investment adviser in Connecticut that pleaded guilty to fleecing his clients via an old-fashioned cherry picking scam.

“Cherry picking” is a fraudulent securities trading practice in which the responsible broker or adviser or whatever the title is executes trades without assigning those trades to a particular account until he determines whether the trade has become profitable or not. The adviser then allocates the profitable trades to favored accounts – usually his ­­or a favored clients’ — and assigns unprofitable trades to accounts of less favored clients.

Trades that depreciated

In other words he puts his financials interests ahead of those of his clients. The Connecticut guy admitted using a master account to buy the leveraged exchange traded fund ProShares UltraShort Financials as well as other securities. Later in the day he disproportionately allocated trades that had appreciated in value during the course of the day to his personal and business accounts and allocated trades that had depreciated in value to the accounts of his advisory clients.

He copped to one count of securities fraud, which carries a maximum sentence of 20 years in prison and a fine of up to $5 million. He has already been barred from the investment industry.

Paying too much

Any investor who still uses a clown like this to handle their money needs to think about it again. Chances are good that you are paying too much and getting too little in return, and they are more than happy to charge you for underperformance.

There is an alternative: low-cost online brokers. This is not a recommendation of a specific company. If you don’t have a computer or an Internet connection, get over to the nearest library and see what is available there. You may find free Internet access and plenty of information to get you started down the road to profitable investing.

That definitely beats handing your hard-earned cash to a con artist.

Add Comment