Although securities fraud can cause financial harm to anyone, perhaps no group of investors is more impacted by stockbroker misconduct or investment fraud than retirees.

In a recent example, a former Colorado stockbroker sold high-income, private-placement investments to retirees. But the investment turned out to be a $2.2 billion Ponzi scheme. Yet according to the securities fraud allegations brought against him, the broker failed to accurately describe the company’s performance to several elderly investors, who invested more than $1 million in the securities. It appears that the high commission that the broker and brokerage firm would from selling the securities caused the broker and brokerage firm to ignore their due diligence obligations. That is, they failed to adequately investigate the securities before recommending and selling them to the retirees.

The U.S. Securities and Exchange Commission brought a civil fraud lawsuit against the company, and the local district attorney filed a criminal suit against the former broker for his role in perpetuating the scheme. The man was recently convicted on 14 counts of criminal securities fraud — one for each defrauded investor.

What’s particularly troubling about this case is that the stockbroker may have begun selling the notes after the company became unable to make payments to all of its investors. In other words, the timing suggests that the stockbroker’s misconduct went beyond an omission of a material fact pertinent to an investment product. It appears that the man knowingly and willingly defrauded his victims, whose ages range from the 70s to the 90s.

Source:, “Former stockbroker found guilty of fraud in MedCap sales,” Bruce Kelly, Aug. 8, 2013

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