The Financial Industry Regulatory Authority (FINRA), the largest independent regulator for securities firms doing business in the United States, is providing two new online tools for investors.  The Scam Meter helps investors determine whether a potential investment may be too good to be true.  The Risk Meter helps investors determine whether they share behavioral traits with people who have been found susceptible to fraud.  FINRA has also issued an alert called Avoiding Investment Schemes to provide information on commonly used tactics in investment fraud.

Sir Ken MacDonald, a former Director of Public Prosecutions in England, says it is.  In an article in The Times he criticized political leaders in the U.K. for failing to adequately address financial fraud as they address other areas such as drug dealing and terrorism.  He states that it is critical to the success of an economy that people have confidence that financial fraud will be punished.  But, he says, people in the U.K. lack that confidence.

The U.S. Small Business Administration has issued a scam alert, warning that fraudulent letters have been sent to small businesses indicating that they may be eligible for a tax rebate.  The letter appears to be created on SBA letterhead and asks the businesses to provide information about their bank accounts, including the name of the bank and account numbers, so that their eligibility for a rebate can be determined.  The SBA warns that this is just a scam to obtain bank account information and warns small businesses not to respond.

The Federal Bureau of Investigation warns that criminals are conducting a unique telephone scam by posing as employees of the U.S. court system.  They contact individuals by telephone and inform them that they have been selected for jury duty in a U.S. court.  They then ask the person to verify their name and social security number and later proceed to ask for credit card information.  If skeptical individuals decline to provide information, the caller threatens them with fines for non-compliance.  The entire phone call is, of course, just a scam to elicit personal information from the individual called.  Officials of the U.S. court system do not contact jurors by telephone and do not solicit personal information.  The FBI first warned of this scheme in 2005, but advises that it is ongoing.

As you read about unscrupulous people defrauding investors through pyramid schemes, have you ever wondered why they are called Ponzi schemes?  The answer is that over 80 years ago a man named Charles Ponzi created a multi-million dollar pyramid scheme that became so famous that it has forever linked his name to this type of fraud.  CNN has created an interesting article (follow the link below) that gives readers a look into the life of the man who duped investors with a story that was just too good to be true.

According to Reuters, as investors continue to consider the magnitude and effects of Bernard Madoff’s alleged Ponzi scheme, the SEC reports that the number of such schemes is not on the rise, but their magnitude is.  The SEC also reports that successful Ponzi schemes have certain factors in common.  The creator of the scheme is generally very charismatic, their investments tend to appear very successful, although specific information about them is hard to obtain, and the investment advisors are usually not registered with the SEC.  This should serve as a warning to investors to fully investigate investment opportunities before committing to them.

A 1996 court ruling stated that in order for prosecutors to achieve conviction of a defendant accused of mail fraud, they must show that a reasonably cautious person would have been deceived by the defendant’s scheme.  The court in the 1996 ruling stated that the ruling was consistent with the mail fraud statute that was enacted in 1872. Prosecutors complained that this ruling had the unintended effect of making it nearly impossible to prosecute for a scheme aimed at victims who are basically gullible or naïve.  The 11^th U.S. Circuit Court of Appeals has thrown out this precedent, essentially agreeing that a perpetrator who tries to defraud the gullible and ignorant is no less guilty than one who tries to deceive the average person.  Legal experts believe that this ruling may have paved the way for an eventual appeal to the United States Supreme Court.

Maxam Capital Management LLC, an investment fund, has filed suit against its auditors, McGladrey & Pullen, LLP and Goldstein Golub Kesssler LLP for professional negligence.  Maxam apparently invested all of its assets with Bernard Madoff and alleges that its auditors were negligent in accepting documents created by Madoff rather than seeking independent confirmation of holdings and trades when performing the audit of Maxam’s financial statements. 

In a case similar to that of Bernard Madoff, Reuters reports that Arthur Nadel, a Florida hedge fund manager has been arrested and will be transported to New York to face charges of both securities fraud and wire fraud.  Investigators allege that Nadel who disappeared on January 14^th, but later surrendered to the FBI, holds only about $1 million of a reported $300 million.   At age 76, Nadel potentially faces 40 years in prison and millions of dollars in fines if convicted on all charges.