If you are considering using provisions under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to withdraw and reinvest money from your retirement savings, be aware that fraudsters may be targeting you. Be wary when someone encourages you to use your retirement savings to make new investments. When considering new investments, do your own research and consider contacting an unbiased investment professional or an attorney.

CARES Act Retirement Savings Benefits

The CARES Act includes provisions designed to provide relief for individuals who are financially impacted by the COVID-19 pandemic. Among these provisions are relief efforts that allow individuals to pay back amounts withdrawn from qualified retirement plans without paying income tax on the withdrawal. The CARES Act also allows individuals to take out larger retirement plan loans with limited income tax consequences. For those suffering financial hardship, the CARES Act benefits can provide much-needed liquidity. Unfortunately, fraudsters and dishonest promoters are using this crisis to encourage investors to make high risk or high fee investments that may not be in the investor’s best interest.

How Fraudsters Are Targeting Retirement Savings

Promoters or investment professionals may contact you with a recommendation that you take advantage of the CARES Act benefits to withdraw money from your retirement savings and invest that money. If you have been contacted with such a recommendation, be very wary. The individual who contacted you may be part of a predatory scheme to profit off your retirement savings. Always be sure to verify that the person you are speaking with is licensed to give advice or sell investments. Contact your state securities regulator or use these free tools from the SEC and FINRA to verify the license and history of an investment professional.

Important Considerations for Using Your Retirement Accounts to Make New Investments

There are several important drawbacks you should consider before you use retirement funds to make new investments. The promoter may charge you high fees. Inquire how much of your money will be invested for you and how much will go to the person managing the investment. Liquidity – whether you can easily cash out of the investment – can be very important in today’s uncertain environment. Make sure to ask whether there are any fees for early withdrawal or sale. Consider the current value of your retirement investments. If the market is down when you withdraw retirement savings, you may not recover those losses when the market rebounds. If you invest the money that you take out as a loan from your retirement savings, you may have difficulty repaying the loan if the investment performs poorly.

Darlene Pasieczny is a fiduciary and securities litigator at Pasieczny Law LLC.  She represents clients in Oregon and Washington with matters regarding trust and estate disputes, financial elder abuse cases, and securities litigation. She also represents investors nationwide in FINRA arbitration to recover losses caused unlawful broker conduct.  Her article, New Tools Help Financial Professionals Prevent Elder Abuse, was featured in the January 2019, Oregon State Bar Elder Law Newsletter.

Featured image courtesy of Pasieczny Law LLC paralegal Torrie Timbrook.

We’ve updated our list of ten red flags that  investors should be aware of: danger signs that point to potential mismanagement of an account or investment fraud by a financial advisor. These red flags are useful as you evaluate your own investments, review the investments of an elderly relative, or if you’ve decided to change brokers.

From our firm’s first-hand experience in reviewing thousands of financial statements and successfully recovering investment money for many clients, these red flags of investment fraud are often a sign of trouble. If you notice any of these red flags and you have concerns, we encourage you to contact us for a free, confidential review. With early detection, investors have the potential to avoid a lot of heartache and significant financial loss.

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Red Flags:

1. Your financial advisor didn’t discuss your risk tolerance with you, told you “not to worry” about that category when filling out account paperwork, or you somehow ended up with a higher risk portfolio than you wanted.  Any reported swing in portfolio value of more than 10% up or down, when you’re a conservative or moderate investor, is a red flag.

2. You discover that you cannot liquidate investments that you thought you could sell. Or you discover an unexpected high fee or surrender charge for selling.

3. Big portions of your portfolio are used to purchase “alternative investments” – things like interests in limited partnerships (LPs), non-traded REITs, private placements, promissory notes, and interests in limited liability companies (LLCs). Many of these investments come with a prospectus, require you to complete special forms just to purchase them, carry high risk for investors, and pay big commissions to the selling brokers.

4. You are encouraged to purchase investments where you must formally certify that you are an “accredited investor”. These investments also often carry a high degree of risk and are only designed for people who can afford to lose all of their investment.

5. You are advised to purchase investments the same day that they are offered to you, without giving you a chance to think about it, especially when your advisor says that the opportunity won’t last long. If you feel any sense of rush, surprise, or pressure to make any investment decision, that’s a red flag.

6. Your account statements stop arriving, your broker is suddenly hard to reach, or your advisor discourages you from discussing your investments with anyone else at the brokerage company.

7. You have investments that do not appear on the brokerage company’s account statements that you receive.   Or the statements otherwise look irregular, show frequent transactions that you don’t understand, or don’t add up.

8. Your financial advisor promises returns that seem too good to be true. In today’s market, there are no legitimate, safe and secure investments that can guarantee an 8% annual return year after year.  Any promised return that seems like an unusually good deal deserves closer scrutiny.  Risky, unsecured promissory note scams may be particularly targeted towards elderly investors as “fixed income” investments.

9. You are offered an investment that you do not understand.  Or your portfolio contains investments that, on closer examination, are not plausible or understandable.

10. You discover that your advisor has multiple disclosures when you look him or her up on FINRA’s BrokerCheck system (search by name at http://www.finra.org/Investors/ToolsCalculators/BrokerCheck). Disclosures may include prior client complaints, bankruptcy, termination from prior employers, regulatory investigations and sanctions, criminal charges, on-going or resolved client disputes.  These are all red flags about a broker’s prior conduct that you probably want to know about before entrusting them with your money.

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If you have seen any of these red flags, and have questions about the legitimacy of your investments or seen large financial losses, do not ignore your suspicions. Call us for a free initial consultation.  We will tell you if your concerns are well founded and whether we can help.  Your call is confidential.

Please call us first, before contacting your financial advisor or any regulatory agency.  Why?  Because those calls are not confidential.  Once you contact the firm you can bet that your communications are being recorded, and the details you include or leave out may undermine your claim.  Securities regulators may be important allies in stopping wrongdoing, but they are not your attorney. By reporting a complaint to your state agency, FINRA or the SEC, you may be starting the clock on a statute of limitations for filing a claim, without understanding what that means.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations. Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or concerns that you or a loved one might be the victim of financial exploitation, call me at (503) 358-8292. Consultations are free, and confidential.

Darlene Pasieczny’s practice at Pasieczny Law LLC focuses on all stages of corporate and securities law issues, securities litigation and FINRA arbitration, fiduciary litigation in trust and estate disputes, elder financial abuse, and complex civil litigation. Darlene’s practice includes representing investors nationwide in investment disputes through FINRA arbitration.

On February 5, 2018, a new FINRA rule geared towards preventing financial exploitation of seniors  – also called elder financial abuse – goes into effect. This is new Rule 2165, which creates a limited safe harbor for brokers to put a temporary hold on certain disbursement requests from a brokerage account.

The rule “permits members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers.”  The new rule also amends existing FINRA Rule 4512, to require members to take reasonable efforts to have the customer identify the name of a trusted contact person as part of gathering customer account information. The broker may contact that person if there is a suspicious request for a disbursement of funds. The broker may also contact that person to confirm the customer’s contact information, health status, or identify of any legal guardian, executor, trustee, or holder of a power of attorney.

The new rule permits, but does not require, temporary holds and contacting the trusted contact person. And using it does not necessarily mean a total halt on all disbursements. For example, a broker could put a temporary hold on a suspicious request to transfer funds to an unfamiliar outside account, while still allowing regular bill payments to continue.

This is an important new tool from the Financial Industry Regulatory Authority (“FINRA”) in the fight to curb financial abuse of senior citizens.

Elder financial abuse continues to be a major problem in the U.S., sometimes with devastating results. Fraudsters cheat seniors out of an estimated $3 billion annually. Some believe the dollar figures are up to ten times higher. Nobody is certain of the overall numbers, in part because it is believed that only a small percentage of cases are reported.  Senior financial abuse depletes retirement savings, and it affects our elderly community in other ways.  Studies concentrated on the health effects among those whose essential life savings have suddenly vanished have found that mortality rate can triple. Just think about the stress and emotional impact on a vulnerable senior when his or her financial security is stolen.

State and federal securities regulators are working to prevent elder financial abuse before it happens. But the scammers are out there. What can you do if you or a loved one has been financially exploited?

Contact an attorney experienced in recovering financial losses. In many circumstances, money unlawfully taken can be recovered. In my work as a litigator, I’ve helped curtail and restore money improperly taken from elders in estate and trust disputes among family members. I have helped recover money from brokers “selling away” from their firm, selling unapproved, extremely risky, or even outright fictional investments to unsuspecting elderly clients. We see bad actors unduly influencing seniors to sell undervalued property.  We see seniors (and others) who continue to place trust in swindlers because con artists are good at what they do. We see forged signatures, shady documentation, account statements printed off a home computer, and account figures that just don’t add up. And we fight for the financial abuse victim to recover money where possible. Contacting law enforcement and regulators are additional important resources, and your attorney can advise you on your best options for loss recovery.

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product. I also represent parties in trust and estate disputes where a fiduciary has breached their duties and money is recoverable to the estate, trust, or beneficiary.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations. Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or concerns that you or a loved one might be the victim of financial exploitation, call me at (503) 358-8292. Consultations are free, and confidential.

This past Thursday, the same day I posted about a recent FINRA Investor Alert regarding cryptocurrency, there was a new press release from the North American Securities Administrators Association (NASAA) with further guidance on the same topic. NASAA’s analysis and warning amounts to this:  Initial Coin Offerings (“ICOs”), and all other investment products related to cryptocurrency or the blockchain, pose a threat to investors.

“A NASAA survey of state and provincial securities regulators shows 94 percent believe there is a ‘high risk of fraud’ involving cryptocurrencies. Regulators also were unanimous in their view that more regulation is needed for cryptocurrency to provide greater investor protection.”

The same day, the SEC made a public statement from Chairman Jay Clayton and Commissioners Kara M. Stein and Michael S. Piwowar, in wholehearted agreement with NASAA:  “The NASAA release also reminds investors that when they are offered and sold securities they are entitled to the benefits of state and federal securities laws, and that sellers and other market participants must follow these laws. Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency – related investment markets are not following these laws. The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.”

“High risk of fraud”?  That’s a polite understatement. The conditions in this cryptocurrency market are the perfect conditions for bad actors to harm investors and cause investment losses. How? Fraud through market manipulation. Fraud through technical manipulation. Fraud through plain theft. Adverse terms and conditions on a clickthrough agreement. Technical failure, incompetence, malfeasance on the part of the provider. Cyberthreats from third parties online, vandals or burglars. Misrepresentations of the real possibility that cryptocurrency is an object of temporary interest, the bubble will pop, and prices will drop.

And, of course, bad actor conduct includes flawed recommendations by financial advisors to jump in and buy these new, complicated products related to cryptocurrency.  If your portfolio contains investments that, on closer examination, are not plausible or not understandable, that’s one of the ten red flags of financial fraud.

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations.  Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or if your broker has stopped returning your calls, contact me for a free, confidential consultation at (503) 358-8292.

FINRA recently released an Investor Alert on cryptocurrency scams. Investors should be wary of jumping into this “hot,” volatile sector, and do their research before handing over their money to a potential fraudster, or for a risky investment that they don’t understand.

In the last quarter, cryptocurrencies such as Bitcoin and Ripple have received a fresh burst of press attention. This includes reporting on massive price swings up and down, and stories of overnight millionaires. According to the media, a Welsh man who spilled lemonade on his laptop in 2013 and absentmindedly threw the hard drive away now wants to mine the local dump for the hard drive. Why? It contained the key to access his lost Bitcoin fortune said to be worth $100 million — but only if he finds it and if the drive is still operational.  It’s a good metaphor for Wild West, gold rush atmosphere of the whole cryptocurrency hype.

With this Investor Alert, and other recent warnings, FINRA points out that:

• Investment offerings based on distributed ledger or “blockchain” technologies may or may not qualify as securities. Many fundamental investor protections written into federal and state law depend on this distinction.
• The cryptocurrency markets inherently transcend national borders. This also limits investor protections. There may be restrictions on how much information the SEC can obtain about the investment, the quality of the information, and limit law enforcement ability to recover money.
• An “initial coin offering” (ICO) for a cryptocurrency is nothing like an “initial public offering” (IPO) for a stock.
• Lack of regulation, lack of clarity about the underlying value of the investment, and the excitement in the market create the perfect conditions for market manipulation and “pump-and-dump” schemes. Fraudsters may use the hype and make false, misleading or greatly exaggerated statements to drive up a higher share value, and then cash out their large holdings at the peak, driving values down and leaving innocent investors at a loss.
• Even if there’s no trace of fraud in an ICO, blockchain operators may themselves be vulnerable to hacking and other cyber threats

According to a December 11, 2017, public statement from SEC Chairman Jay Clayton, the number of such investments registered with the SEC is ZERO. “Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.”

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations.  Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or if your broker has stopped returning your calls, contact me. Consultations are free and confidential. Call (503) 358-8292 now.