“Brokers know that a customer who is in declining health is unlikely to notice unauthorized trading.” – The Vigilant Investor, p. 234
Army Staff Sergeant Robert Bales, accused of massacring Afghan women and children earlier this month, used to be a stockbroker. He worked for Ohio-based brokerage firm MPI Financial and left the industry on the heels of a finding that he abused at least one of his customers, draining what once was an $850,000 retirement account. According to a story from ABC News:
Robert Bales, the staff sergeant accused of massacring Afghan civilians, enlisted in the U.S. Army at the same time he was trying to avoid answering allegations he defrauded an elderly Ohio couple of their life savings in a stock fraud, according to federal documents reviewed by ABC News.
“He robbed me of my life savings,” Gary Liebschner of Carroll, Ohio told ABC News.
Financial regulators found that Bales “engaged in fraud, breach of fiduciary duty, churning, unauthorized trading and unsuitable investments,” according to a report on Bales filed in 2003. Bales and his associates were ordered to pay Liebschner $1,274,000 in compensatory and punitive damages but have yet to do so, according to Liebschner.
“We didn’t know where he was,” Liebschner told ABC News. “We heard the Bahamas, and all kinds of places.”
Liebschner says he recognized Bales after news reports named him as the American soldier accused of killing 16 Afghan villagers in a shooting rampage.
Liebschner filed a complaint against Bales in May 2000, claiming Bales took his life savings of $852,000 in AT&T stock and through a series of trades reduced its value to nothing.
The Ohio retiree recalled Bales as a “smooth talker.” Asked if he regarded Bales as a con man, Liebschner said, “You’ve hit the nail on the head.”
At the time, Bales worked for an Ohio brokerage firm, MPI.
According to federal documents, Bales failed to appear at an arbitration hearing to resolve Liebschner’s complaint.
While most brokers who are caught abusing their customers do not join the Army to escape accountability, many of them do move to a new town looking for a fresh start. They often find things easier in their new location. Having been kicked out of the securities industry, there are no longer any branch managers or regulators looking over their shoulder. No one to complain that they are not complying with what they always viewed as ticky tack rules. Nothing between them and investor funds but scheduling a meeting. Things are easier for them, and they are more dangerous than they ever were while employed in the securities industry.
There is a way to recognize these characters. The best first step is to call your state securities regulator and ask whether the salesman is licensed to sell investments. But, you won’t want to make that call. It’ll seem like as big a waste of time as trying to talk a 14-year-old girl out of her Justin Bieber tickets. The salesman is so nice, you see. So smooth. So confident. So unlike your image of what an investment scamster would look like. Why waste your time with a phone call that’ll confirm what you already believe deep down — that this guy is completely legit?
To be able to make the call that will save your nest egg you must know something about why you won’t want to make that call. Once you understand how hardwired cognitive biases will pull you away from that simple step of self-protection, you’ll be able to make the call. Until you understand why you’ll be so stubbornly reluctant, a book full of warnings from investor protection experts will not drag you to the phone. The equation is simple: Learn and be safe or say “all in” and push your entire nest egg out onto the gambling table.