Casino Bets Fade Investors Retirement Savings

April 5, 2017

Save a copy of today's Blog. Send it to your friends. Send it to your family. Do whatever you have to do to warn the unwary and unsophisticated about the sharks out there on Wall Street and the snakes under too many rocks in the financial services community. Today's featured regulatory case involves an SEC Complaint against an individual who took the money and ran to the nearest casino. Lady Luck wasn't shining down on this gambler. In the end, a lot of hard-working folks lost every penny of their savings. Lifetimes of back-breaking 9-to-5 got dropped into slots and raked off the felt. Retirement funds were lost on cold dice, lousy cards, and the wrong color or number. Not what investors had expected. Not by a long shot -- except long shots weren't paying off on their investments.

A Team of One

If you visit the "Our Team" page of the First Fidelity, LLC website, you will note the company's slogan: Your Safe Money Solution & Trusted Tax Professionals. As to the individuals who constitute the firm's Team . . . well, that's an interesting fact: apparently the team consists of one and only one person, Lucita Zamoras:

Lu is a specialist in retirement products and custom insurance services. She holds a Bachelors in Business Administration with a major in Accounting from Mindanao State University, Philippines. She was a Full State Scholar and graduated Cum Laude.

Lu spent over twenty years in senior corporate management positions, before finding her passion helping retirees and pre-retirees. Since 2000, she has been providing her Chicagoland area clients with expert guidance and valuable financial solutions. She offers an extensive menu of services to meet their needs in all different stages of life. Her company, First Fidelity, LLC, provides a variety of insurance services and income planning strategies. She strives to help her clients protect their assets and secure their well-earned retirement in all economic environments.

It's a nice photograph of Ms. Zamoras next to the above biography. She looks pleasant enough. She looks honest and trustworthy, as far as one can tell from a mere photo. It's nice to see that her passion is "helping retirees and post-retirees."

SIDE BAR: Along with that issue about how a team is only one person, I'm also sort of wrestling with the difference between a retiree and a post-retiree. If I retire, then I become a retiree, right? After I retire and am a retiree, how do I achieve that post-retiree status for which Zamoras has a passion?  The difference between being retired and post-retired is what exactly? Sort of strikes me as the difference between being dead and post-dead. Of course, I am so looking forward to my retirement when I will clip on my suspenders and also cinch my white vinyl belt just below my chest as I wear my Hawaiian shirt, Bermuda shorts, black socks, and sandals to the Early Bird Special at the local all-you-can-eat buffet. Any of you know if post-retirees can cut ahead of those young 'uns who are merely newbie retirees?  

SEC Complaint

Perhaps the United States Securities and Exchange Commission ("SEC") read Zamoras online bio and came away with some of the questions that I did.  Maybe the SEC was wondering about how Zamoras had strived (or is that strove or striven?) to help her clients protect their assets and secure their well-earned retirement. Ultimately, the SEC didn't seem happy with the answers it came up with and filed a Complaint against Zamoras.

In Securities and Exchange Commission, Plaintiff,  v. Lucita A. Zamoras, Defendant (Complaint, 17-CV-02528, United States District Court for the Northern District of Illinois / April 3, 2017), the SEC asserts that First Fidelity was opened by Zamoras in 2000 and primarily focuses on "the sale of insurance products such as fixed annuities, indexed annuities, and individual variable and term life insurance products." Notwithstanding the firm's website and its reference to "Our Team," the Complaint asserts that other than Zamoras, the "only other employee was a receptionist/office manager who did not meet with clients." The Complaint then sets the tone for what seems an affinity-fraud scheme:
16. Zamoras is originally from the Philippines and has built a clientele that includes primarily elderly Filipino-Americans. Her grasp of the Filipino language and culture allowed her to win the trust of numerous clients, forming an especially strong bond with those who purchased the fraudulent promissory notes in this matter.

17. Zamoras met many of her clients through free lunch investment seminars sponsored by First Fidelity. Zamoras' investors are unsophisticated with little prior investment experience. Many are first generation immigrants who have worked their entire life to save for their retirement.
NOTE: A Complaint merely contains allegations and a Defendant is presumed innocent unless and until proven guilty by a preponderance of the evidence in a court of law.

Transfers to APS

The Complaint alleges that between 2009 and 2013, Zamoras encouraged her clients to open accounts with American Pension Services, LLC ("APS"), which is described as

19. Most IRA custodians are banks or broker-dealers that limit the holdings in IRA accounts to firm-approved traditional investments. In contrast, APS, which formerly was a self-directed IRA custodian, gives account owners the freedom to invest in anything consistent with applicable IRS rules and regulations, including promissory notes.

20. The clients that purchased promissory notes from Zamoras had not heard of APS until Zamoras made the recommendation that they roll their retirement funds over to APS.

21. Zamoras then encouraged her clients to transfer their retirement funds, previously invested in stable insurance products through First Fidelity, to APS.

Unsecured Promissory Notes

Many of Zamoras' clients allegedly transferred their former employer-sponsored 401(k) plans from First Fidelity to APS. Not only did such transfers incur a surrender charge when the clients liquidated such insurance products as fixed annuities but those clients then invested the proceeds in unsecured promissory notes purportedly issued by Zamoras. These unsecured notes were issued by Zamoras directly to the client and came with no less than five-year maturities (with most maturing after ten years). Although the notes promised between 3.5% and 5% annual interest, the instruments were of the balloon variety and the promised interest was payable in a lump sum at maturity. As further alleged in the Complaint:

28. Indeed, several of the investors actually understood that their funds would remain at APS and would safely earn the promised interest rate, not appreciating what a self-directed IRA account was and that APS was not an insurance company or other interest-paying entity.

29. After signing the promissory notes, Zamoras instructed APS to wire investor funds to her personal accounts at various national banks. Zamoras is the only authorized signor on those accounts.

30. Once the funds arrived in her personal account, Zamoras used the investor funds for gambling or to pay her personal expenses.

31. Between October 2011 and March 2013, Zamoras withdrew over $1 million from her bank accounts at various casinos. Zamoras' investors were a substantial source of her gambling funds.

32. Although Zamoras lost all investor funds, the clients continued to receive statements from APS showing the promissory notes held in the account at their original face value. This led the investors to believe that their funds were still safe and secure.

33. Zamoras led her investors to understand that their funds were in a safe, secure investment program and that APS would hold the funds. She did not tell investors she planned to immediately transfer their funds to her personal account and use their money for personal expenses and gambling. Investors would not have invested with Zamoras had they known she was simply going to gamble with their retirement funds.

34. Little, if any, investor funds were ever invested by Zamoras.

35. Investors told Zamoras that their funds were essential to fund their retirement. Many investors told Zamoras that these funds represented their life savings and they could not afford to take any risk.

36. As described above, Zamoras's investors are all unsophisticated investors with little prior investment experience. Many are first generation immigrants who have worked their entire life to save for their retirement and are now left with nothing.

The SEC charged Zamoras with violating Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder. The SEC is seeking against Zamoras injunctive relief, disgorgement, prejudgment interest and a civil penalty.

Bill Singer's Comment

Compliments to the SEC for drafting a complaint replete with sufficient content and context to render the document compelling. If the allegations are proven true, this is a shameful affinity fraud and should serve as a chilling reminder to those public investors who make investment decisions based upon what they perceive to be a common interest or attribute with a so-called financial professional. Just because someone speaks your language, comes from your hometown, go to your church, or coaches your kids' soccer team is not enough justification to trust that person with your life savings.

When it comes to your life savings, maybe you really can't and shouldn't trust anyone.

When it comes to your life savings, maybe you should only invest in products that you understand.

When it comes to your life savings, maybe you should not place your money in any account that you and you alone do not have the only right to withdraw funds or securities.

Are there trustworthy financial professionals? Absolutely. Are there reputable financial organizations? Of course. Are there appropriate investments for your life savings and are they managed by honest men and women. Certainly. How, Bill, you might ask, do I find those products and those folks?  Alas, you have asked a question that may not have an answer -- or at least a satisfactory one. What I can tell you is that you must never base any investment decision upon the flowery words on a website or the promises in a glossy brochure or the impressive presentation at that free-lunch seminar or the referral from your friend.

Add up the hours that it took for you to save that retirement nest egg. Figure out the years of comfort you hope to obtain from all your hard work. Then, recall the allegations that those investors who trusted Zamoras had "worked their entire life to save for their retirement and are now left with nothing."