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Fraud is Alive and Well – Buyer Beware

Financial fraud in the United States is alive and well.  And, as Stephen A. Bornstein wrote in this newspaper nearly a year and a half ago in this newspaper, the JOBS Act is likely to cause an uptick in fraudulent investment schemes.

Investor FraudThere are many fraudsters in jail today, including Bernard Madoff, Tom Petters, Jeffrey Skilling, Bernie Ebbers, Lou Pearlman, and Martin Frankel.  But fraud remains live and well.  Take the case of Mark Malik, who was recently accused by the SEC of stealing more than $700,000 from investors.  The 33-year old hedge fund manager, as reported by The Wall Street Journal, described himself on Twitter as a “CEO – Global Economist – Entrepreneur – Influencer” even though his only financial-services experience was a two-year spell in Jersey City, N.J., as a trainee at a brokerage firm called E1 Asset Management Inc., which fired him in 2009.

How did this former waiter with no higher-education degree gain traction?  He lied. According to the the Wall Street Journal article, “Bloomberg LP in March 2011 called Malik a ‘rising fund manager,’ based on false information Malik provided.”  The Wall Street Journal article goes onto explain that other hedge-fund ranking services were duped as well.  For example, BarclayHedge Ltd. gave Mr. Malik’s fund a Recognition Award for Excellence #1 and a BarclayHedge report in August 2012 showed the fund achieving returns of 288.06% in 2010 and 189.18% in 2011, according to court filings.  And, according the the Wall Street Journal article, Infovest21 LLC, in February 2013 ranked the fund among the “Top Equity Long/Short Funds” and reported its estimated assets as $100.26 million when, in fact according to the SEC, the fund’s brokerage account on Dec. 31, 2012, held just $269.52.

Both BarclayHedge and Infovest21 make clear in disclaimers that their information is provided by fund managers and is not independently verified.

So, how can you protect yourself from falling victim to financial fraud when investing your money?  First, don’t trust rating services that make it clear they do not independently verify the information they publish.  Second, take the time to understand what fraud looks like.  For a short list of resources recommended by Accredited Investor Markets on the subject, click here.  Third, use common sense; if something seems too good to be true, it very well may be and warrants a particularly close look.

About Jonathan Friedland

Jonathan Friedland is a partner with Sugar Felsenthal Grais & Hammer, a law firm with offices in Chicago and New York City. Born and raised in a New York suburb, Friedland graduated SUNY-Albany magna cum laude in three years and then earned his law degree from the University of Pennsylvania Law School. Friedland clerked for…

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