Consumer Reports Money Advisor has even weighed into the fray, with tips to its massive subscriber base on how to avoid stock fraud and prevent being taken to the cleaners.
The Lowell Sun of Massachusetts (3/23/12) outlined a couple of grievous examples of stock broker fraud. Raymond James Financial was required to pay an arbitration award of nearly $1.8 million following the unauthorized movement of $3.5 million worth of funds from bonds to variable annuities and a variable life insurance policy. The client in this case was 87 years old.
Then there was the damage award of $800,000 charged to Merrill Lynch after the financial juggernaut placed the savings of another client, in her 80s', into an all-stock portfolio.
Both awards were handled via stockbroker arbitration.
Brokers have a fiduciary responsibility to represent the intent and wishes of their clients, rather than for personal gain. It is a long-held strategy in the world of financial planning that higher risk and potential volatility is best weathered by younger investors with sufficient time to absorb potential losses. Older investors are better served, generally, by products with lower risk.
In all instances, a client's risk tolerance, regardless of age, is paramount.
One of the most bizarre tales involved a US soldier who formerly defrauded an elderly couple in Ohio of their life savings.
According to the New York Daily News (3/21/12), Staff. Sgt. Robert Bales was a stockbroker in Columbus, prior to enlisting. Federal regulators, in 2003, cited Bales for "fraud, breach of fiduciary duty, churning, unauthorized trading and unsuitable investments," and ordered Bales and his partners to pay Gary Liebschner and his wife $1,274,000 in compensatory and punitive damages.
The Liebschners had asked Bales to liquidate stock they held in AT&T in order to pay medical bills. The stock was worth $852,000, according to the report. The stock was liquidated—Bales was said to have taken as much as $16,000 in commission in a single day—but the money was never advanced to the investors. Bales disappeared.
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It is a bizarre tale of stock fraud.
Consumer Reports, the wildly successful and respected magazine published by Consumers Union, advocates that investors be on the lookout for large numbers of trades, unexpected fees or mysterious drops in portfolio value. One popular aspect of stockbroker fraud is "churning," which are successive trades in an effort to generate fees.
Many investors have little knowledge of such attempts to defraud. Little wonder so many have required the help of a stock broker fraud lawyer to unravel the mysteries of fraud via a stock broker arbitration lawsuit.