As you may be aware, two made for television movies are currently being released about the life of Bernie Madoff, who in 2009 was sentenced […]
While Bernie Madoff’s tentacles did not extend to St. Louis, we did see St. Louis brokers sent to jail for stealing client money. Madoff’s victims included sophisticated investors, foundations, investment firms and even universities. The cases involved brokers employed by some of the most respected brokerage houses in St. Louis.
How can you protect yourself?
It’s certainly bad enough when your investments lose money. It’s a disaster when your broker steals your money. Often, there is little, if any, recourse. What should I watch out for?
First, no respectable broker or financial advisor would ever ask you to make out a check directly to them. In two St. Louis cases, the brokers had their clients write checks directly to them. The victims erroneously thought they were making money as they received phony reports from the broker. Never ever make a check directly to your broker or financial advisor.
Second, review your statements to make sure your deposits are properly credited. Immediately, report any discrepancies. Also watch for any unauthorized withdrawals. All monthly brokerage statements include a section called ‘Monthly Activity’ which must include all deposits and withdrawals. […]
I have often preached to Users of Paladin services that the most dangerous type of financial advisor was an ethical advisor who turned rogue. These financial advisors acquired credentials when they were legitimate and used the credentials to rip-off investors when they decided to put their own interests first. And because the credentials were real, investors did little or no due diligence before committing their assets.
For example, Madoff was the chairman of NASDAQ and the president of one of the largest market-maker firms on Wall Street see Madoff: Don’t let Wall Street scam you, like I did. He looked legitimate and had credentials, references, and referral sources that helped him grow his business. It also pays to remember, he was not caught, and he turned himself in when the 2008 bear market created billions of dollars of distribution requests that could not be fulfilled.
Paladin Research conducted 15 minutes of Internet-based due diligence after Madoff surrendered to authorities. We found several inconsistencies and omissions that should have been red flags for investors. I can only conclude they were so mesmerized by Madoff’s credentials, background, and opulent offices that they did not think it was necessary to conduct any form of meaningful due diligence – even if they were going to invest $100 million. […]