Bad Brokers or Advisers

The Wall Street Journal published an article in May about a financial adviser in Beverly Hills, California named Ray Kay who had promoted via Radio advertising a supposedly high-yield, low-risk investment. Unfortunately, the company behind the investment is now in bankruptcy and is being investigated as a Ponzi Scheme. Mr Kay himself, it turns out, was “barred from the securities industry for allegedly running a fraud, and later fined $5,000 for breaking that ban.” The challenge for investors, however, was that when he was prosecuted for those offences he was known as Raymond. L Kotrozo. Changing names is a common tactic employed by fraudsters.

The investment Kay/Kotrozo was promoting falls into the category of “private placements” a type of private investment surging in popularity among accredited investors and companies looking to raise money for a variety ventures.

However, because they are more lightly regulated than other investments, and many stockbrokers have started marketing private placements to individuals who may not be as sophisticated investors, these kinds of less regulated investments can be very attractive to fraudsters and unscrupulous advisers. Worse yet, according to the Wall Street Journal:

the brokers who sell them are far more likely than other brokers to have sketchy records, a Wall Street Journal analysis has found. One in eight brokers marketing private placements had three or more red flags on their records, such as an investor complaint, regulatory action, criminal charge or firing

Of course, you don’t have to be putting your money into exotic investments to run across risky brokers or advisers. Any time you decide to make a big investment you should look carefully at who’s selling it and any partners involved in the investment.

But just making a few google searches is not enough. In the above example, Mr Kay had changed his name, a step that would no doubt make it difficult to find out about his history with the brokerage community without a very in-depth background check.

Even official tools meant to help you look up information may not always tell you everything you need to know. For example, the SEC in the USA and FCA in the UK have tools that allow you to look up individuals and firms, this includes those who have had action taken against them. The challenge is these are good tools but the data is incomplete and not kept current. In this particular case looking up Mr Kay under his current name or even his original name at the time of this case unravelling would have brought back no results.

If you’re making a large investment it is worthwhile to hire professionals to make sure they are who they say they are and don’t have a history of problems. IYE Global can conduct in-depth Due Diligence checks anywhere in the world to help you uncover any risky history your broker or partner might have, even when they’ve taken steps to try to hide their past.

Call us today on: +44 (0)20 8914 7923 or use our contact form to let us help you conduct proper due diligence and background checks before you invest your money with someone you may not want to trust.