Washington State Department of Financial Institutions

How to Protect Your Money From Theft by Dishonest Investment Advisers

Topics Covered:

Recent Examples of Fraud and Abuse

The following cases are a sample of the new type of financial scams by self-proclaimed and registered small investment advisers that state securities enforcement officials are encountering:

One Investment Adviser, known widely due to his Saturday-morning radio show, induced his clients to turn over more than $4 million. He accomplished this by touting phony performance figures for a bogus mutual fund called the GTC Fund, which stood for "Good 'Til Canceled," that promised "maximum capital growth consistent with the preservation of capital." Unfortunately for the investors, he used the money to run a typical Ponzi scheme in which early investors were paid with later victims' money. The money also supported a lavish lifestyle that included his horse racing business and gambling junkets. He was finally arrested and was ultimately sentenced to eight years in jail.

A father-and son, who were not registered as investment advisers, told clients of their accounting firm that they would pool investor funds and purchase various securities. Twelve investors ultimately provided $1.7 million. Investigators uncovered massive diversion of investor funds for the personal benefit of the father and son. Victims included an entire church congregation where one of them served as treasurer. Both men were found guilty in state and federal courts.

A registered investment adviser, who was the owner of a college planning service, advertised his expertise in repositioning assets for families seeking financial aid for their college-bound children. Offering fraudulent securities and trust agreements he obtained $293,000 from 14 investors and used the money to pay for personal and business expenses including a luxury Mercedes with the license plate IPLAN4U. One of his victims was a 19-year-old man who lost $15,000 he had received after his father had died from cancer. He was convicted on one count of mail fraud, sentenced to 24 months in prison plus three years of probation, and ordered to make restitution.

A woman swindled $1.8 million from 80 individuals she recruited from her income tax preparation service. In league with her husband and son, the woman convinced her carefully selected clients that they would receive returns higher than certificates of deposit from nine separate limited partnerships in residential mortgage loans that she offered. After pleading guilty, she was convicted of securities fraud and money laundering and sentenced to 57 months in federal prison. Her former clients lost everything they invested.

A former pro football player and self-proclaimed investment adviser with a history of being disciplined for securities violation, was arrested after a joint investigation by state and federal agencies. The accused allegedly ran a Ponzi scheme in which early investors were paid with money provided by later ones, then encouraged to invest ever larger sums. Residents of several states may have been bilked out of as much as $30 million. The accused owned several luxury homes and an airplane, was an avid golfer, and recruited many of his victims from a local country club.

DFI