Investors Lose Over $100M to Investment Scam Run by Former Felon
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Epperson & Greenidge is investigating brokerage firms that recommended GWG L Bonds to investors
On April 20, 2022 GWG Holdings, Inc. (GWG) filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas (case 22-90032). According to an article in the Wall Street Journal, published on the same day, the bankruptcy was due to “accounting issues...read more
Imagine that you’re a retired investor looking to increase the returns on your portfolio. Now imagine that your advisor – a person you trust to guide some of your largest financial decisions – approaches you with a suggestion to invest approximately $78,000 in a business you know little, if anything, about. However, you trust your financial advisor, and the business itself appears to be legitimate, advertising itself as “America’s largest pension cash-flow originator” with a “global footprint of over 200 employees.” You make the investment – only later to realize that your money has been taken by a former felon, with little if any hope of return. What would you do? Would a FINRA arbitration attorney be able to help? And perhaps most importantly, how did this situation occur in the first place?
Retired Investors Fall Victim to Fraud in Pension Scam
Unfortunately, the situation described above is not hypothetical. For 63-year-old JC Barb and 66-year-old Mary Barb of Hemet, CA, it became reality in April 2018, when the couple – both retirees – received a letter from Scott Kohn, former owner and operator of Future Income Payments (FIP). Due to “intense regulatory pressure and legal expense,” Kohn notified the Barbs, he could make “no guarantees [they] would receive all payments.”
The Barbs were not the only ones to invest in FIP, nor were they the only investors to receive this letter. As of July 2018, a minimum of 25 states have either initiated investigations into FIP, or have already moved to take action against it.
Some states have longer histories with Kohn, like Minnesota, where Kohn was sued in 2017 for violating state laws capping interest rates on loans. One, for instance, charged an interest rate of 200%, similar to the interest rates one might expect to see on a payday loan – a controversial lending practice widely seen as predatory. (For context, Wells Fargo and Bank of America report average mortgage loan interest rates around 4% to 5%, which is also similar to the average interest rate for an auto loan.) Notably, the 2017 complaint against FIP mentions that “at least nine… government regulators have taken action against [the company] for unlawfully making loans without proper state licensure, violating state… laws, and/or misrepresenting the nature of… transactions with consumers.”
That complaint now represents merely one of many lawsuits which have since been filed against FIP, including one brought by Delaware-based escrow business Faw Casson & Co. in May 2018. As an escrow company, Faw Casson’s role was to hold investors’ funds.
The aftermath of the scam is clear: in addition to coming under investigation by the Consumer Financial Protection Bureau (CFPB), FIP is now the defendant in multiple lawsuits alleging illegal business practices, with at least one attorney estimating that FIP investors collectively lost over $100 million. For the Barbs, nearly $80,000 of that money was going “to be a big help to us in our retirement and now it’s not there, it’s gone.”
The bigger question is, how did Kohn – a former felon who spent over a year in federal prison for trafficking counterfeit goods – manage to scam so many investors in so many states?
Part of the answer lies in the distinction between public securities and private securities. While the sale and purchase of public securities is strictly controlled by the U.S. Securities and Exchange Commission (SEC), private securities are subject to scant regulation and minimal oversight, creating a minefield for investors lured in by the promise of high returns. This issue is exacerbated when brokerage firms or financial advisors persuade clients like the Barbs to invest in questionable products, despite understanding the immense financial risks involved. Unfortunately, this is a widespread issue in the financial sector, often motivated by the reward of high commissions. Investment advisors can see tremendous gains, while their clients wind up losing thousands – or more.
FINRA Arbitration Lawyers Fighting for Victims of Investment Scams
If your broker deliberately gave you inappropriate investment advice in order to make money for himself or herself, you should ask an unsuitable investments attorney about your options for getting compensated. If you lost money because your financial advisor broke the law, an attorney can file a claim on your behalf, potentially enabling you to recover compensation.
These claims may be mediated or arbitrated by an organization called FINRA, or the Financial Industry Regulatory Authority. With authority from the SEC, FINRA regulates hundreds of thousands of brokers and firms across the United States. If one of these firms or brokers financially harms a client by committing fraud, the investor can alert FINRA by filing certain legal documents, including a Statement of Claim and FINRA Submission Agreement, with help from an attorney. Depending on the details of the claim and supporting evidence, FINRA may agree to initiate dispute resolution.
At Epperson & Greenidge, P.A., we have extensive experience representing defrauded investors against brokers and advisors in FINRA mediation and arbitration proceedings. If you lost money investing in a scam or fraudulent product at your advisor’s recommendations, the FINRA claims attorneys of Epperson & Greenidge can help you fight for financial compensation. For a free consultation about your legal options as an investor, contact us online, or call (877) 445-9261 today.