Financial Advisor Malfeasance: Does It Take Two To Tango?

Interacting with a financial professional can be a bit of a tango. One foot forward and one foot backward. Hopefully, the overall momentum is in the right direction. Sometimes, though, it goes the wrong way. A client loses money due to manager maleficence. Is it only the professional who is responsible or can the consumer be complicit as well, thereby making financial misconduct easier?

When there is a conviction having to do with a Ponzi scheme or a broker misrepresentation, is the victim culpable too? Certainly, we would all like to think not. But consider the opinion of others about specific unfortunate circumstances when investors lost money.

Greed Overcoming Common Sense

A high profile case in Indiana a few years ago was Timothy Durham who was convicted of fraud and conspiracy. His crime was a $200 million Ponzi scheme. Durham is now serving 50 years in federal prison, which will turn out to be a life sentence unless he is paroled. Scott Cohn, an “American Greed” special correspondent, wrote this about Durham’s victims, whom he doesn’t see as completely innocent.

But it wasn’t just his own greed that allowed him (Durham) to pull off the fraud for so long. Durham had plenty of help from his own victims...
Donna Immel, whose father Herman Nussbaum lost $170,000 in the scam and has since passed away, recalls the time she suggested to her dad that he might want to be a little more cautious about putting all his savings into Durham’s firm, Fair Finance… ‘No.’ He said, ‘Fair Finance has treated me well, and I don’t have any problems with it.’

Like many clients, Nussbaum had begun investing with the company when it was operating legitimately under a previous owner. Most customers either didn’t notice or failed to ask questions when Durham took over in 2002 and began turning Fair into his personal piggy bank. Perhaps lulled by the seemingly dependable returns, they just kept pouring their money in.

It’s a tragically common theme in scam after scam: perfectly intelligent people willing to set aside their own common sense—and some basic principles of investing—in the quest for a little extra return or steadier results. Nussbaum paid dearly, losing his entire life’s savings. He is hardly alone.”

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