An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
Check Out Line Earns Stockbroker A Bar
June 25, 2014
Wall Street fraud is often banal. True, some fraudsters are quite clever and demonstrate admirable creativity in the spiel that traps the pigeons, and, thereafter, in the fake documentation that allays investor concerns. More often that not, though, you read about a fraud and wonder how anyone fell for such garbage -- why no one took any meaningful steps to check it out before putting down dollar one. Consider today's offering in the BrokeAndBroker.com Blog.
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Claus C. Foerster submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Claus C. Foerster, Respondent (AWC 2014041483401, June 18, 2014).
Foerster entered the securities industry in 1988 and was first registered in 1989. The AWC asserts that he has been registered with three FINRA member firms, the latest of which was Raymond James & Associates, Inc.
Check Out Time
The AWC asserts that sometime around 2000, Foerster started touting to his customers an income-oriented investment fund, which he referenced as "S.G. Investments." Funny thing about the mechanics for investing in this purported fund, if you were one of the customers solicited by Foerster, you learned that you couldn't just purchase the product through your brokerage account. Oh no. Course not. You had to wire or transfer the investment dollars from your brokerage account into your personal bank account. Once the bucks had come to rest in your bank account, Foerster instructed you to write a check out to "S.G. Investments."
I dunno know about you but if I'm being pitched a hot deal by a stockbroker but I can't buy the thing through my brokerage account, a number of very loud bells and whistles are gonna go off. On top of that, I'm going to do a ton of due diligence before I write a personal check out to this company.
Raking It In
Turns out Foerster managed to convince some 13 customers to write out personal checks from their bank accounts to S.G. Investments. And we're ain't talkin' chicken feed here. We're talking $3 million!
The Ol' Misdirection Play
So, what exactly went wrong with this fabulous investment fund deal? If the investors went by the account statements provided to them by Foerster, not much. Except for the fact that the statements had been fabricated by Foerster and were bogus. On top of that, two investors got paid a dividend on a monthly basis. Of course, that payment eventually stopped and didn't add up to the cost of the investment -- in retrospect, it was merely an attempt to buy time.
Control Freak
In the end, there wasn't much of substance to S.G. Investments; in fact, there was no S.G. Investments fund. There was, however, an S.G. Investments bank account. And who, might you ask, controlled that bank account? None other than Foerster.
Trouble On The Horizon
According to online FINRA records as of June 25, 2014, Foerster was named as a respondent in a customer arbitration on February 18, 2014, which sought $100,000 in damages based upon allegations:
EXCESSIVE TRADING, UNAUTHORIZED TRADING, BREACH OF FIDUCIARY DUTY, COMMON LAW FRAUD AND MISREPRESENTATION, NEGLIGENCE, BREACH OF INDUSTRY RULES AND VIOLATIONS OF THE SOUTH CAROLINA UNIFORM SECURITIES ACT. ACTIVITY DATES 2/2008 THRU 2/2014.
Bar One
FINRA deemed Foerster's conduct in connection with the S. G. Investments transactions as constituting violations of FINRA Rule 2150(a) and its predecessor, NASD Conduct Rule 2330(a); and FINRA Rule 2010 and its predecessor, NASD Conduct Rule 2110. In accordance with the terms of the AWC, FINRA imposed upon Foerster a Bar from association with any FINRA member firm in any capacity.