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Chasing Demons: "Securities Fraud Is Still Happening"

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Sante Fe, NMSecurities fraud seems to have dropped from the headlines, and Bernie Madoff is in safely locked up far from other peoples' money. But make no mistake, says Louis Straney, a super expert on fraud detection, litigation, prevention and control of financial misconduct—there is a never-ending stream of heartless pretenders intent on stealing your money.

"Securities fraud is in no way declining," says Straney from his office in Sante Fe. "I think in fact it has gone to an even higher level of intensity both in terms of looses and its global footprint.

"The internet means fraudsters can conduct their business from anywhere in the world. Everything is faster and quicker and the stakes are higher and there are larger amounts of money involved"
"You get a surge of visibility and awareness during events such as Bre-X or Bernie Madoff or similar situations where tens of thousands of people are victimized. But it doesn't mean it isn't still happening and it doesn't mean we shouldn't be vigilant."

Straney has an MBC Survey Certification from Ohio State University and is currently doing postgraduate studies in International Law at the University of London. He frequently speaks to lawyers and accountants in the US and Canada about securities fraud and related issues, and regularly consults on security fraud issues with professionals and private investors. He has provided testimony at trials and arbitrations.

He offers some simple, yet critical, advice about investing money in the modern world where the internet is providing new opportunities for ruthless swindlers to do their nasty work and avoid prosecution.

Fifty years ago, security fraudsters went door to door peddling fake shares in oil and gas wells. "Now everything is faster and quicker and the stakes are higher and there are larger amounts of money involved," says Straney. "The internet means fraudsters can conduct their business from anywhere in the world. It is difficult to get cooperation between international regulatory authorities and extradition is not automatic.

"There are people who spend their entire day plotting these schemes. The poor victims are busy running their lives and their business and fraudsters can dedicate all their time to this effort because the stakes are so high."

And once you've been had, the chance of recovering even a portion of the money, as has been demonstrated in the Madoff case and countless other security rip-offs, is almost zero.

Don't Bite on What You Don't Understand

Before you open an account with anyone, be sure of what you are signing. "The paperwork is confusing, often lengthy, it can be two or three dozen pages and if you don't understand it—don't sign it until it can be reviewed by a third party," says Straney.

Take some notes when you're talking to your financial advisor. "Those can come in handy. If there is a need for litigation in the future, you will have conversation details to refer to."

And pay attention to what comes in the mail. If it doesn't look legitimate, that should be a clue. "It should have postage paid stamps not physical stamps, it should be on premium paper and it should be presented in portrait format, not landscape format. It should be signed," says Straney.

"I think a lot of misconduct would be stemmed early if people paid attention to statements."

If it Sounds Too Good to be True…

As obvious as it seems, people are continually taken in by a pitch that offers returns that are far above average. It is unlikely that solid investments in equities will return more than seven percent a year, and fixed income products are unlikely to produce more four percent a year. "If someone is suggesting they have a higher return through some black box approach, anything that breaks from the general trend of market deserves skepticism," Straney.

"And when it is exotic or offshore or hard to get into (like the Madoff scam), be careful. Those kinds of presentations often draw in people who are dissatisfied with their current service and they're looking for someone to give them a unique approach."

That is precisely the situation people should avoid.

Guidance from the Internet

As Straney says, there is no end of investment opportunities being pumped through the net.

Some dishonest and callous schemers promote an "Armageddist" ideology. "There is a lot conspiracy fraud out there suggesting the only way to overcome the affects of the recession is to buy gold, and conspiracy theorists have done an amazing job of defrauding unsuspecting investors."

Straney's advice to investors seems obvious. But it is amazing just how many people have been taken for millions, if not billions, of dollars and continue to be taken by the countless demons involved in security fraud.

Consider yourself forewarned.

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