by Howard Haykin

Using a convincing sales pitch, the broker with American Portfolios managed to raise at least $1,150,000 from 5 investors. All the checks were made payable to the local credit union, and they were ‘dutifully’ deposited into a credit union account. Yet, unbeknownst to investors, the account was one that the broker controlled, and he began misappropriating the funds.

The broker managed to cover up his scheme by providing his customers with falsified account statements. But like many similar schemes, this one soon began to fall apart, in three stages.

ALL THAT GLITTERS ISN’T GOLD, …  and THERE’S NO SUCH THING AS A FREE LUNCH.  Regardless of who’s doing the selling, investors can never be too trusting. And to safeguard one’s financial assets, investors and/or their independent designated financial watchdogs must conduct appropriate due diligence. With private investment opportunities, this means: (i) obtaining and analyzing the Private Placement Memorandum (PPM) or other deal documentation; and, (ii) identifying and researching all key players in the deal. If such information is not available or readily forthcoming, simply “leave the table” - there will be other deals.

While most deals and brokers/agents are legitimate, there will always be “exceptions to the rule” – as in the case above.

[For further details, click on ... SEC Litigation Release and SEC Complaint.]