NYT: Financial Fraud Defies Policing

Tuesday, 08 Jan 2013 07:51 AM

By Michael Kling

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Even after new financial regulations enacted following the collapse of Bernard Madoff's massive Ponzi scheme, catching financial fraud is proving to be difficult.

A case in point: A Well Fargo financial adviser, Philip Horn, allegedly defrauded clients for over two years producing damages of at least $732,000 by executing trades in clients' portfolios, canceling the trades and pocketing the profits, The New York Times reports, citing court documents.

"Theft, Ponzi schemes and other financial scams continue to happen at an alarming rate," said Thomas Ajamie, a lawyer representing two of Horn's clients.

Editor's Note: Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

"It's simply unbelievable to me that this kind of fraud could happen for so long without Wells Fargo doing anything about it," Barry Zelner, a corporate lawyer who invested with Horn, told The Times.

Ironically, policing financial services for fraud has become even more difficult as large banks like Wells Fargo increase their brokerage businesses to make up for smaller profits prompted by tougher regulations, according to The Times. Banks are throwing more money at their financial crime-fighting efforts, and regulators are beefing up enforcement actions.

Part of the reason for the continuing prevalence in financial fraud is overconfidence of investors, according to the Financial Industry Regulatory Authority (FINRA). Baby boomers, who are most often targets of investment scams, are especially overconfident about their knowledge of financial management.

According to FINRA, a telephone survey found that 92 percent felt "somewhat" or "very" confident about managing their finances, with nearly 80 percent describing themselves as "somewhat" or "very" knowledgeable about investing.

However, only 44 percent got a passing grade on a basic financial literacy knowledge test.

According to the Federal Trade Commission and the Canadian Anti-Fraud Centre, consumers in North America reported losing more than $1.5 billion to all types of scams in 2011.

Editor's Note: Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

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