Consumers can learn a valuable lesson from Wednesday's indictment of a Las Vegas executive and two associates for running an alleged $1.5 billion Ponzi scheme that bilked thousands of victims: It's vital to vet your advisors.
According to the indictment, Edwin Fujinaga and two Tokyo associates promised investors a series of interest payments that would accrue over the life of the investment and would be paid out along with the face value of the investment at the conclusion. Instead, investigators say the defendants used new investors' money to pay earlier investors and to cover personal travel and other expenses.
The indictment comes the same week that a jury found two advisors guilty of victimizing NHL players and other investors. In that case, government agencies charged former financial advisor Phillip A. Kenner and former professional race car driver Tommy C. Constantine with wire fraud and money laundering. The two defrauded clients—among them former NHL players including Joe Juneau and Michael Peca—of $15 million, spending most of the funds on personal expenses and other purposes unrelated to the pitched real estate and business investments.
Attorneys for Kenner and Constantine did not immediately respond to requests for comment.
Industry experts say both cases have real world lessons for the general public.
Regardless of income, investors often don't vet the financial professionals they hire, instead relying on a word-of-mouth recommendation from a friend, colleague or agent, said certified financial planner Jordan Waxman, a managing partner at HighTower Advisors who works with high-net-worth clients, including athletes and entertainers. That is a big mistake, he added.
Checking up on an advisor's background is a key step before hiring them, said Gerri Walsh, president of the Financial Industry Regulatory Authority's Investor Education Foundation.
Check again on a regular basis, at least once a year, for advisors, brokers and other financial experts you already do business with.
"Make it a habit, make it a New Year's resolution, make it your mid-year financial check-up," Walsh said. "Just do it."
As a starting point, when hiring a financial or investment advisor, run the names of the individual and firm through free research tools including FINRA's BrokerCheck, the Securities and Exchange Commission's investment advisor search and financial information firm BrightScope's advisor search.
"That's the first question: Are they actually registered?" said Mike Alfred, chief executive officer of BrightScope. Other potential issues that even a cursory search can turn up include job terminations, bankruptcies, suspension of credentials, client complaints and litigation.