A number of years ago, I was in an internet stock club. Most of the members in the club were gaga over a particular stock. I researched the stock and couldn't figure out how the company made money, so I passed on the stock. The company was Enron. Enough said for the moment.
On Monday, Nathaniel Popper of the NYTimes wrote a piece about the problems associated with investors chasing better returns in a low interest environment. As you might imagine, the scammers are circling again. Popper points out that tens of thousands of individuals put money into "speculative" bets promoted by aggressive financial advisers. The investments include private loans to young companies and shares in bundles of commercial real estate properties.
As my readers know, we presently have a case against LPL Financial which is going before the Massachusetts Supreme Judicial Court in which the court will rule on the enforceability of an Arbitration clause in a brokerage contract where the injured plaintiff alleges fraud and violations of MGL ch. 93A in the sale of an unsuitable product to an elderly client. The client lost her life savings and LPL asserts that she must proceed to financial industry arbitration (rather than a jury trial) and that the Federal Arbitration Act trumps state consumer protection law. Interestingly, the NYTimes article notes that Massachusetts Secretary Galvin last week ordered LPL to pay $2.5million for improperly selling non traded REITS to hundreds of Massachusetts residents between 2006-2009. Congrats to Secretary Galvin!
Popper notes that "Brokers promoting bad investments to unsophisticated investors is nothing new. But while the easy prey used to be people looking to get rich quick, the pool has widened to include savers looking to earn the kind of income once reliably available from traditional investments".
Although the victims in these cases are, more often than not, elders, the current economic setting makes every investor a target. Everyone is trying to stretch their retirement dollar or maximize returns. Back to Enron. If you don't know what you're investing in, or can't explain it to your child or a neighbor, why place your savings at risk? If it sounds to good too be true, it probably is. Think of the recent case in which we recovered over $750k for a Harwich elder that was placed in unsecured notes promising to pay 12%. By the way, wasn't that the interest rate Bernie Madoff told his investors they were earning?