Trust but verify financial advisors

Lynn TarpyFeature

There’s no such thing as a free lunch. When you reach a certain age, you start receiving invitations to a free steak dinner at a fancy restaurant where you rarely, if ever, eat because it is expensive. All you have to do is sit and listen to a financial planner, advisor, broker, wizard or all of the above. They will proceed to tell you how to earn a lot more money on your IRA, 401(k) and savings.

It’s almost too good to be true. In Knoxville over the last four years, we have seen far too many times, it is not true.

Jacqueline Stanfill (“Jackpot Jackie”) used connections to her wife’s family, the University of Tennessee and others to defraud them of millions of dollars. She used these connections, her personality, nice offices with an in-house lawyer and self-proclaimed investment skills to con people into giving her their life savings. She met with her clients regularly and provided “custom made” reports. No need for her clients to log in to a computer. Jackpot Jackie would do it for them. All you had to do was trust her.

However, when it came time to withdraw funds, a problem arose. There was no money. It was all spent on a million-dollar-plus home for her and her wife, various real estate investments, jewelry, lavish entertaining, trips to France with family and friends, and the most luxurious of lifestyles.

A lawsuit was filed, the FBI raided her offices, and it was all exposed. CBS even did a television show on her. She is now in the care of the federal penal system. Her investors received a pittance of their money back.

Hugh Murphy was an investing wizard who was looking after your IRA by investing in gold and commercial realty with the promise of great returns. Many of his current investors had inherited their parents’ IRA. Again, no need to log in to check the huge returns that he was reporting on a regular basis. Millions of dollars were lost. Murphy has been indicted by the federal government and is awaiting trial. He has exercised his 5th Amendment rights and will not talk about where the money went. Again, a pittance may be recovered.

Tre Wieniewitz is a “financial planner and advisor” who until last year heavily advertised in East Tennessee on both television and radio. He was advising his clients to invest or loan money to Woodbridge Group of Companies in nine-month notes, trying to skirt SEC requirements.

Woodbridge is a Ponzi scheme. When it was exposed, he began selling the same type of note to his clients in 1 Global Capital. It filed a chapter 11 bankruptcy in July 2018. Wieniewitz was not registered as a broker-dealer nor associated with a broker-dealer. The securities he was peddling were not registered with the SEC nor were they exempt from registration.

Wieniewitz sold over $64 million in securities to over 600 investors. From 1 Global alone, he made more than $900,000 in commissions within the 90 days before it filed bankruptcy and approximately $3.5 million in total. This is all set out in the Securities and Exchange Commission Complaint filed in federal court in Miami. A search in the Knox County Register of Deeds Office will show Wieniewitz transferring real estate to new entities in August of 2018.

Wonder why?? Investors may get just a little over 40 percent of their savings back.

While not a subject of this SEC complaint, immediately after the 1 Global chapter 11 filing, Wieniewitz began selling the same type of security in Prominence Homes out of Birmingham.

Prominence Homes has sent letters to its investors acknowledging the securities are not registered nor exempt. It is unable to repay the loans as they mature. Prominence is now working with the Alabama Securities Commission on a plan to repay the investors without having to file a bankruptcy. It appears that Prominence was duped by others but is now trying to make it right.

Conclusion: Greed and proven criminality in Stanfill’s case, a federal indictment in the Murphy case, and a Securities and Exchange Commission judgment against Wieniewitz exist in these events. But the most common thread amongst all three is the sole reliance by the investors on the word of the perpetrators of these acts. No one got a second opinion from a lawyer, CPA or another financial advisor. No one looked to check on the FINRA website to see if these people or the investment was registered (it’s even free).

Had a $200,000 investor or even a $25,000 investor spent $300 for a lawyer or CPA, they would have quickly discovered the financial advisors were not registered and the product being sold was not what it was represented to be.

When investing your retirement or savings, take the Ronald Reagan approach – “Trust but verify.” Do a FINRA or Securities and Exchange Commission check on your advisor. Make certain that you can check on your investment whenever you want to. Don’t rely upon a meeting at which you are given reports. Go to the website of the entity in which you are investing. Get a second opinion. Nobody likes paying lawyers, but ask those who have lost their life savings and retirement plans how much not spending $300 to $500 ended up costing them.

Treat your retirement and savings like your billfold or pocketbook. Don’t blindly give it to anybody. “Trust but verify.”

Lynn Tarpy is a founding member of the law firm Tarpy, Cox, Fleishman & Leveille in Knoxville. He has represented a wide variety of business and personal clients. His practice has evolved into commercial litigation, business law, bankruptcy, mediation and general practice. Reach him at ltarpy@tcflattorneys.com

 

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