As such, I need no lessons from anyone about the pernicious fraud that too often passes for business as usual in the securities industry. I have more than enough client war stories on that account. However, my sensibilities are informed not merely by the horror stories of victimized investors or the unbridled greed of scamsters, but also by the enervating ineffectiveness and, at times, incompetency, of those charged with regulating Wall Street.
Lately, I find myself shaking my head in frustration . . . and often in disgust. Although the hallmark of fraud is that a con artist can dupe even the most suspicious and educated among us, there are limits to my compassion. At times I am unable to understand why investors refuse to undertake the most basic, the most rudimentary due diligence, which would have alerted them to trouble. Similarly, I am often shocked at how ineffective the regulatory community is when it comes to timely uncovering fraud before folks are financially devastated.
Case in Point
Let me present you with the following scenario.
A gentleman by the name of Edward Moskop makes your acquaintance. He seems like a nice enough chap and strikes you as quite knowledgeable about financial matters. He tells you about how he can make you money if you investment with him. Hey, who couldn't use a few extra bucks in the old nest egg these days?
Being a sensible person, you decide to do some minimal due diligence. You've read some columns by that fine fellow Bill Singer, and you remember that he tells you to Google every potential money manager's name and to go on to the Securities and Exchange Commission's (SEC) and Financial Industry Regulatory Authority's (FINRA's) websites to see if you can learn anything. Figuring that Singer is a sharp guy, you start your investigation of Moskop on FINRA's BrokerCheck site.
What did you learn about Moskop from simply typing his name into BrokerCheck?
According to publicly available information on the FINRA database of individual brokers and member brokerage firms, BrokerCheck :
EDWARD L. MOSKOP
This broker is not currently registered with a FINRA firm.
Previously Registered with the Following FINRA Firms
FINRA records show this broker previously held FINRA registrations with the following firms:
Registration Dates Firm Name CRD # Branch Location
01/30/1990 to 12/10/1990 THE INVESTMENT CENTER, INC. 17839 BELLEVILLE IL
12/19/1988 to 08/16/1989 E.I. SALES, INC. 1703 DES MOINES IA
07/22/1983 to 12/23/1988 W. S. GRIFFITH & CO., INC. 10410 BELLEVILLE IL
07/20/1983 to 10/18/1985 PPS SECURITIES CORP. 10244NEW YORK NY
02/15/1982 to 05/17/1983 PRUCO SECURITIES CORP 5685 NEWARK NJ
12/14/1973 to 05/17/1983 THE PRUDENTIAL INSURANCE CO 680PHOENIX AZ
COMPLAINT NUMBER CHI-1267 (NASD DISTRICT NO.8) FILED APRIL 10, 1990 AGAINST RESPONDENT EDWARD LYNN MOSKOP ALLEGING VIOLATIONS OF ARTICLE III, SECTIONS 1 AND 19(a) OF THE RULES OF FAIR PRACTICE IN THAT RESPONDENT MOSKOP ACCEPTED TWO CHECKS TOTALLING $30,000 FROM TWO PUBLIC CUSTOMERS, MADE PAYABLE TO HIS COMPANY, WITH INSTRUCTIONS TO USE THE FUNDS TO MAKE MUTUAL FUND INVESTMENTS, BUT MOSKOP FAILED TO FOLLOW THE INSTRUCTIONS, AND INSTEAD, HE DEPOSITED THE FUNDS IN AN ACCOUNT IN WHICH HE HAD A BENEFICIAL INTEREST, AND USED THE FUNDS FOR HIS PERSONAL BENEFIT. DECISION RENDERED SEPTEMBER 28, 1990 WHEREIN RESPONDENT IS CENSURED, FINED $15,000, BARRED FROM ASSOCIATION WITH ANY MEMBER OF THE NASD IN ANY CAPACITY AND ACCESSED COSTS OF $707.00. IF NO FURTHER ACTION, DECISION IS FINAL NOVEMBER 11, 1990. NOVEMBER 11, 1990 - DECISION IS FINAL.
What Did You Learn?
Okay, so, what did you discover about Moskop?
- Moskop is not currently registered with FINRA and hasn't been registered since 1990.
If Moskop told you that he was a stockbroker or registered with a brokerage firm since 1990, that would not appear to have been correct. According to FINRA's website, Moskop has not been a registered person since 1990 and has no current securities-industry registration. FINRA's records say that he was last registered in December 1990. My, that's 21 years ago. Hmmm, what's he been up to?
- FINRA's records show that in 1990, Moskop was fined and barred by the NASD (formerly the National Association of Securities Dealers, Inc.and FINRA's predecessor self-regulatory organization) for what was essentially stealing money from clients and converting the funds to his own use.
Geez, he didn't exactly bring that all up when he pitched you, did he? Do you still feel comfortable investing with Moskop? If Moskop wanted you to trust him with your nest egg, would you?
I'm guessing that your answer was "no." For what it's worth, I wouldn't trust this guy either.
Okay, now, sit down because this is gonna be quite a shock.
In a May 18, 2011, FBI and Department of Justice Press Release , we learn that a federal grand jury for the Southern District of Illinois returned a two-count indictment for mail fraud and money laundering charges against Edward Lynn Moskop, age 63. If convicted, Moskop faces a sentence of up to 20 years on mail fraud, up to 10 years on the money laundering, as well as a $250,000 fine and three years of supervised release on each charge.
NOTE: An indictment is merely an allegation and under the law, a defendant is presumed to be innocent until proven guilty beyond a reasonable doubt in a court of law.
No Point Gilding this Stinking Lily
Below is a verbatim extract from the Press Release:
The indictment alleges that Moskop, operating as Financial Services Moskop and Associates, Inc., acted as a securities broker for several customers making mutual fund and other investments. In 1990, after a complaint made by the National Association of Securities Dealers (NASD) for misusing funds, Moskop had been barred from association with any member of the NASD and was no longer registered to act as a broker in the securities industry. It is alleged that from 1991 to 2010, Moskop persuaded customers to provide him with funds for investment, but instead of making the investment, he kept the funds for his own use. It is alleged that Moskop created and mailed to his customers fraudulent receipts for investments identified with fraudulent account numbers. It is alleged that Moskop obtained by fraud from 1991 to 2010 approximately $2,400,000 from 25 victims, including his own relatives, persons referred by trusted friends and attorneys, a local VFW Post, as well as long-time customers of his insurance business.
Lemme see if I got this right. From 1991 through 2010, Moskop allegedly remained in the financial services sector and not a single federal, state, or self regulator had a clue? Oh my, what a wonderful first line of defense Wall Street's overblown and much vaunted system of regulation provides. I mean, seriously - if they didn't keep an eye on this guy then what exactly do these industry cops do?
And it's not like Moskop branched out into a whole new fraud. To the contrary, he seems to have stuck with the scam that got him barred in 1990. I mean, for godsakes, Moskop is now charged with stealing about $2.4 million from 25 victims over some 20 years. How does someone with his record manage to hide in those shadows?
Worse, it seems that the victims include his own relatives. Did none of his family members know that he was tossed out of the industry in 1990?
Then we learn that counted among his alleged victims are persons referred by trusted friends and attorneys, a local VFW Post, as well as long-time customers of his insurance business.
Attorneys? Not one of those officers of the court looked up Moskop's NASD bar or realized that he wasn't registered with an NASD or FINRA member firm?
Customers of his insurance business? How does someone who was barred from the securities business get a state license to run an insurance business - and did any of his insurance clients know of his prior NASD bar . . . and did state law require this disclosure?
Sharing the Blame
Of course, there's quite a bit of blame to go around. Shame on the regulators for not monitoring this guy. Shame on his victims for not being more diligent in checking him out.
Still, the scary thing about this case is not merely how long Moskop allegedly hid his fraud or that he was barred from the securities industry. The scary thing is that he's likely the tip of an iceberg.
Our nation's regulators and prosecutors run after the high-profile crooks like Rajaratnam, but it is this pernicious, lower-level crime that riddles our markets and destroys investor confidence. The big boys victimized by the whales of Wall Street can often absorb their losses. The small fry - the VFW crowd and the local yokels - their losses are often measured in irreplacable nest eggs and family businesses. Unfortunately, it too often comes down to what generates the most publicity and results in more time on camera.
The big federal case against the billionaire? Hey, let's call the FBI, the states, FINRA, the SEC - get 'em all on the phone so that we can nail this crook.
The scamster in the shadows, the small-time con artist who's draining the life savings of the moms and pops? Hell, who's gonna put me on national TV for that one?
Face it, Wall Street's system of regulation is bankrupt and busted. If you want to disagree with me, fine - but first explain to me how a guy like Moskop evades detection for two decades and operates in the insurance business.