The stock market has been on a roll. Investors’ accounts are growing fat.
Unless their accounts turn out to be fake.
A stunned Terry Poulsen found out his Lawrence investment guy, Gregory A. Price, had given him a fake account number. Poulsen discovered that there was no TD Ameritrade account in his name — and no $286,364.65 — by visiting a local branch.
“When the account wasn’t there, you could have knocked me over with a feather,” Poulsen said.
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Others have complained about Price to the Kansas securities commissioner’s office, and an investigation is ongoing. Last week, the state issued a cease and desist order against Price, outlining his actions in the seven-page order.
Turns out, good times are dangerous times for investors. Few think to question their advisers, stock brokers and account managers when balances are growing. What could be wrong, right?
Area securities attorneys confirm that complaints to financial regulators have fallen substantially as the market has marched higher.
Once the market turns, and eventually it will, many account holders may find out their nest eggs, college funds and other accounts weren’t what had been advertised.
Faking investment accounts is an old ploy familiar to lawyers who represent victims.
“I’ve had three or four of those (cases) over the years,” said John J. Miller, an attorney at Swanson Midgley LLC in Kansas City. “They’re just forged, phony account statements.”
Miller said one similar case involved a real account, but one of the documents didn’t look right. The word “discretionary” had been misspelled as “descretionary.” Miller said he learned that the broker had forged a “corrected” form to convince Miller’s client that he was making money when a statement sent by the brokerage firm had showed losses.
A decade ago, fake statements convinced more than 100 investors that their Overland Park-based adviser was working for their financial security rather than his own.
The scheme by James A. Freese, whose firm was called AFG Capital Management Inc., unraveled when one client became curious. Freese had set up Charles Schwab accounts for his clients and mailed them their account statements.
The curious client noticed that his friends with Schwab accounts could see their information online, but he couldn’t figure out how to check his. When he visited a Schwab office to learn how to check his account online, he learned instead that he had no account.
Records show Freese got out of prison in 2013 and had been ordered to pay more than $7 million in restitution. Payment information in his criminal case credits him with having paid only $3,016.18 in restitution.
Poulsen, who lives in Tennessee, won a judgment earlier this month against Price in Douglas County District Court in Lawrence. The attorney who represented Price could not be reached.
Poulsen said he’s not counting on seeing his money again.
“I found out the whole thing was bullshit and a scam,” he said.
Financial recovery rarely happens in scams, and that is the biggest reason investors need to do some homework before they hand over their hard-earned money.
One place to look is BrokerCheck, an online site run by the Financial Industry Regulatory Authority, or FINRA. The best way to check on a broker is to ask for his CRD (Central Registration Depository) number and then punch it into BrokerCheck. Ditto with the firm’s CRD number.
FINRA identifies what it calls “high-risk” brokers by looking at information included on BrokerCheck reports as well as that broker’s “associations with problematic firms,” “links to previously disciplined individuals,” “informal actions levied by FINRA” and other factors, the group’s CEO said during a speech in June.
Last year, FINRA barred 1,244 individuals and 50 firms from the brokerage industry.
A Securities and Exchange Commission site provides additional reports, called Form ADV, on investment advisers and investment advisory firms.
State securities regulators also will help track information about brokers, advisers and firms. In Missouri, call the Missouri Securities Division at 800-721-7996 or its vulnerable citizens services unit at 855-653-7300. In Kansas, call 800-232-9580.
BrokerCheck reveals more than anyone would need to know to avoid investing with Gregory Allen Price, CRD No. 2667678.
Price has not been registered to offer investments since 2003. His firm, which he called Price Financial Group, has never been registered.
Price’s registration ended in early 2003 when FINRA barred him from the industry for “excessive trading,” developing an “unsuitable” investment strategy for a client and other actions when he worked at a Morgan Stanley brokerage office in Kansas City.
Investors also should exercise diligence even with properly registered brokers at legitimate firms, said Jane Stafford, an attorney in Prairie Village who handles securities cases and consults with firms about regulatory compliance issues.
“A second opinion (about an investment offer) never hurts, even if it’s from a broker down the street or a CPA, especially if it’s something different or unusual,” she said.
Investors also should:
▪ Be sure that their account statements come to them directly and from the firms that hold their funds. These are called custodial accounts when an adviser, such as Freese or Price, doesn’t take custody of a client’s money but rather uses another firm, or at least purports to use them.
▪ Send money for investments directly to the firm holding the account, never to the broker or adviser or their accounts. It also would help to contact the firm to ensure the deposit was made and that your account really is there.
▪ Not allow their account statements to come from or through the individual broker or adviser.