What Did Your Brokerage Firm or Investment Adviser Do Wrong With GWG
Published On: July 28, 2020

Chicago-based Stoltmann Law Offices has represented hundreds of investors who have been victims of one of the most egregious investment frauds: Ponzi schemes. These swindles promise quick riches and rely upon an increasing number of “investors” to keep the operation going, sometimes over a period of years. The schemes eventually blow up when new investors can’t be found to perpetuate it or promoters are outed by investors or associates for faking returns.

The most famous Ponzi scheme – and perhaps one of the largest – involved broker-money manager Bernie Madoff. Over a period of 17 years, Madoff defrauded thousands of investors, lying about profitable trades. In 2009, he was sentenced to 150 years in prison, after pleading guilty to a $65 billion swindle of some 65,000 victims around the world. Many of Madoff’s victims, which ranged from non-profit organizations to celebrities, were financially ruined. A court-appointed “Madoff Victims Fund” has distributed nearly $3 billion to investors. His sons, who worked for their father’s firm, turned Madoff into authorities when they learned of the scam.

Despite the notoriety of the Madoff swindle, Ponzi schemes are still ensnaring innocent investors. As one of the oldest investment fraud vehicles around, the Ponzi scheme has two selling points: Promoters promise outrageous returns in a short period of time and rely upon continuing stream of new victims to “pay off” early investors in fake profits. This perennial false promise of easy riches makes it one of the most durable schemes for dishonest brokers, who continue to sell them — until the frauds collapse.

Firms that employ brokers involved in Ponzi schemes, of course, can be sanctioned and fined by regulators. They can also be subject to criminal penalties and face civil liability from defrauded investors. FINRA, the securities industry regulator, fined the Atria Wealth Solutions subsidiary of brokerage firm Cadaret Grant last month for selling unauthorized securities in a Ponzi scheme. The firm was cited for a “failure to supervise” an un-named broker and fined $200,000.

The private securities sales were “part of a Ponzi scheme that the broker orchestrated, which resulted in millions of dollars in losses to its victims, including several customers of Cadaret Grant,” according to the regulator. The firm “failed to take reasonable steps to investigate red flags that the broker was involved in private securities transactions,” stated FINRA.

The Cadaret case had all the traits of a classic Ponzi scheme, which relies upon false statements and scant or falsified disclosures. Money is shifted around without investors’ knowledge and they rarely know they are being scammed – until the “new” investor money dries up or the broker is caught or exposed. Often the scheme is quite elaborate, with layers of fraudulent actions designed to deceive even their employers. “To perpetrate his scheme,” FINRA stated, “the broker gave two of the Ponzi entities names that closely resembled those of legitimate companies with publicly traded stock (with which the broker had no involvement).”

“By creating shell companies with names that were similar to legitimate entities, the broker was able to deceive investors into believing they were investing in the legitimate companies. The broker then deposited investor funds in bank accounts that he maintained for each of the Ponzi Entities, and then used those funds to pay his personal expenses and to make promised interest payments to earlier investors.”

FINRA and other industry regulators have strict rules on disclosing essential details on all investments sold by brokers. Firms are also legally compelled by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.

Stoltmann Law Offices have represented over one hundred investors in claims against brokerage firms and banks involving Ponzi schemes.  These claims usually sound in the firm’s failure to adequately supervise the financial advisor who runs the scheme while affiliated with the brokerage firm.  If you invested with a broker and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!


The posting on this site are mere OPINIONS and NOT statements of fact in any way whatsoever. The information should not be relied upon and there have been no findings made against the firms or individuals referenced on this site. In addition, this Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Stoltmann Law Offices (161 N Clark Street 16th Floor Chicago, IL 60601). The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


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