A Bergen County, New Jersey, judge has ordered two law firms – Paul, Weiss, Rifkind, Wharton & Garrison and Lowenstein Sandler - to pay an amount in sanctions that is believed to be sufficient to deter repetition of their misconduct and to compensate defendant for the frivolous litigation in a suit they filed on behalf of the plaintiff, billionaire Ronald Perelman, in a family dispute over hundreds of millions of dollars.  The judge decided that the deterent amount is a total of $1.96 million in sanctions that these law firms must pay to the defendants as a fee shifting penalty.  Defendant’s counsel requested $4.5 million in attorney fees for the part of the litigation the judge found to be frivolous.

“To measure the quality of the lawyer by the hourly rate, that’s not the right way to do it.”  Christopher L. Weiss, Esq., from the law firm of Weiss Esq., Ferro, Labella & Zucker, LLC.

Mr. Weiss said this on June 9, 2010, to the Superior Court of New Jersey, Chancery Division, Bergen County, during a hearing over whether to shift legal fees to from the defendant to the plaintiff as a result of plaintiff’s assertion of frivolous claims.  The plaintiff was Ronald Perelman who was represented by  two law firms:  Paul Weiss, Rifkind, Wharton & Garrison and Lowenstein Sandler.  Paul Weiss and Lowenstein were sanctioned by the New Jersey Judge for asserting frivolous claims.  And, they deserved it.  According to opposing counsel, Paul Weiss and Lowenstein deceived the court in an effort to advance their client’s claims.   A monetary fine imposed on these firms is not enough, the lawyers should be subjected to disciplinary proceedings and sanctioned with at least a suspension from the Bar.

As for the quote, lawyers know that another lawyer should not be judged his his or her hourly rate, but the problem is that the public does not.  Well, maybe now they will.

Click here to read the transcript – Transcript

According to the Washington-based Investor Protection Trust, a nonprofit that promotes shareholder education, one out of five Americans over the age of 65 has been the victim of an investment scam. There are well over 35 million Americans over the age of 65, which equates to more than 7 million seniors who have been abused by an investment promoter either through unsuitable investments, high fees, or fraud.

Investment scams and fraud have been undertaken by unscrupulous investment promoters since the inception of money and investments. Senator Herb Kohl (D-Wis.), who heads the Senate’s Special Committee on Aging, has been quoted as saying that, “We need better regulation of this industry so seniors can tell the difference between professionals who offer clear and unbiased financial advice and bad actors…who steer them toward inappropriate financial products.”

Senator Kohl certainly means well. But government regulation has never, and will never, help anyone determine whether a charming, intelligent, smooth-talking investment promoter is an ethical investment professional or a con artist. If legislation could do that, Bernard Madoff could not have operated his colossal Ponzi scheme. The recent Wall Street and Consumer Protection Act won’t fair any better at preventing investment scams than the Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 140, Investment Advisers Act of 1940, or the many other pieces of legislation designed to prevent investment scams and fraud.

There is only one way to prevent becoming a victim of an investment scam, and it does not matter whether you are a teenager or a senior. That one way is to protect yourself. So how do you protect yourself and still invest your savings in a manner that provides income and/or capital appreciation so that you can keep pace with inflation and support yourself through retirement?

A system of checks and balances, just like the U.S. Constitution, is the smartest approach to managing any system that relies on the decision-making of other people. In the investment world, that means every investor should obtain an independent, conflict-free, sophisticated investment evaluation prior to making an investment with an investment promoter or broker. If you avoid the investment scams, you have a chance to create a sensible financial plan that can produce income and the capital appreciation you seek even though the income obtainable in the securities markets likely will be less than that promised to you by a con-artist operating an investment scam.

Initially, the system was set up so that the only person explaining any investment opportunity to an investor was the investment promoter or broker, or perhaps several investment promoters or brokers. The inherent problem with this structure is that each investment promoter or broker had his or her own interests at heart, notwithstanding affirmative representations from each of them that the investor’s interests are paramount. In other words, an inherent conflict of interest always encumbered the relationship between investment promoter and investor.

Then, government agencies and non-profits showed up on the scene to combat the pervasive investment scams and fraud. Their weapon was and remains investor education, a noble cause. There can be no doubt that these investor education programs have saved many from becoming victims of investment scams, but the sad reality is that these efforts are simply not enough. A quick look at any news publication these days will likely reveal that the government authorities have shut down yet another investment scam in which hundreds of victims lost their life savings. Have not doubt that for every one investment scam that the authorities shut down, there are several others the continue to operate and that start up anew.

The system of checks and balances only works if investors have access to an affordable, independent, conflict-free, sophisticated investment professional. In the past, no such option existed. But, today that has changed. In plain language this means that investors can obtain advice from a highly sophisticated investment professional who has no interest in managing their money. That’s what it means to be conflict-free.

Jeffrey Wittenberg, Esq., founder of Wittenberg Law, has established the affordable Investment Scam Prevention Program^TM in order to help safeguard the savings and futures of individual investors. Typically, the investment scams can be spotted by an experienced, well-trained, investment professional. Many, if not all, of the victims that come to Wittenberg Law for legal counsel after losing their savings in an investment scam could have avoided the tragedy if they had the opportunity to seek affordable counsel before investing their life savings.

Lawyers can make a fortune pursuing litigation on behalf of defrauded investors, and investors can retrieve some of their money at times. But that takes years of litigation, and major emotional suffering. Ben Franklin said it best when he said, “an ounce of prevention is worth a pound of cure.”

Now that every investor, even an investor considering a $10,000 investment, has access to Wittenberg Law’s affordable Investment Scam Prevention Program^TM, investors can employ the optimum investment approach of checks and balances before signing-over their savings to any investment promoter or broker. Wittenberg Law has no interest in managing investors’ money, hence it is conflict-free.

An added bonus is that Wittenberg Law brings a totally objective perspective to the investment opportunity. An objective viewpoint is essential in light of the affinity scams that are so prevalent, wherein the investor is subjectively motivated to hire an investment professional because he or she is from the same background, color, religion, nationality, etc. Worse yet, many victims were referred to an investment professional by a close family member or friend who had early success in the investment scam. Investors must take the emotion out of their investment decisions, and the only real way to do that is by bringing an completely objective person to point out any red flags.

Contact Jeffrey Wittenberg, Esq., at 877-352-2010 to protect yourself today by signing-up for the Investment Scam Prevention Program^TM.

I have been asked if investors who hold accounts with large broker-dealers containing public securities need to be concerned about becoming a victim of an investment scam.  The answer is unequivocally, “yes.”  It is important at the onset of the relationship to conduct a thorough broker check in order to know the person with whom you are entrusting your savings. It may be even more important to monitor the investment account because things change, broker’s suffer personal problems, and sometimes the sheep who charms you into establishing the account with a blue chip stock sheds the sheep clothing and reveals the wolf only after months of building a trusting relationship with you.

All investors are responsible for monitoring the activity in their investment accounts.  Failing to monitor the account is akin to falling asleep at the wheel of the car — it won’t feel good when you finally wake up.

Below is a reprint of an article that emphasizes my point.  Hiring an attorney after you realize that money is gone and blaming the broker-dealer for failing to notice account irregularities may result in the return of some money, but it is far better to prevent losses before they occur as a result of an unscrupulous stock broker, investment adviser, or any other investment promoter.

In the past, investors simply have not had an easy, efficient and affordable way to evaluate investment portfolios or prospective investment opportunities.  That is no longer the case.  Today, investors have a choice.  They can sign-up for the Investment Scam Prevention Program^TM offered by Wittenberg Law.  The Investment Scam Prevention Program^TM is designed to identify red flags in any investment portfolio or prospective investment opportunity, and also to monitor investments on a monthly basis for account irregularities.  Before investing even $10,000, spend roughly $400 to have an independent, conflict-free, sophisticated attorney review the investment from a legal perspective.  Most scams are easily identifiable to the trained eye.

Contact Jeffrey Wittenberg, Esq., founder of Wittenberg Law, to inquire into the Investment Scam Prevention Program^TM.

Wachovia Broker Engaged In $40 Million Investment Scam The Toledo Blade, February 20, 2007 (Mark Reiter)

A complaint filed with brokerage regulators claims that William Sirls bilked millions of dollars from Wachovia Securities’ clients in fraudulent stock and real estate transactions to feed a gambling addiction.

Mr. Sirls, 42, who is facing charges in U.S. District Court in Toledo for money laundering and mail fraud, was a branch manager and vice president of a Wachovia Securities office in Toledo until March, 2005.

Federal prosecutors said the scamming of clients and co-workers at Wachovia and others involved $17 million to $40 million and began in 2000 and continued until last September, nearly two years after Mr. Sirls resigned from the brokerage.

The complaint, filed on behalf of two investors who lost more than $2.5 million, alleges that the Grosse Ile, Mich., resident took funds from Wachovia clients and others in short- term trading and high-risk stock options to pay gambling debts.

The complaint, which was provided by the investors’ attorney, Andrew Stoltmann, was filed with the National Association of Securities Dealers, the self-regulatory body of U.S. brokerage firms.

Mr. Sirls, a licensed securities dealer since 1990, allegedly lured investors into fictional and fraudulent schemes that promised big returns on stock trades and real estate. The complaint said investor Ken Walker, 83, of Grosse Ile and Marco Island, Fla., lost $2.4 million of nearly $4.9 million in what he thought was being invested in real estate transactions in California.

But Mr. Sirls used the money in “what amounted to a giant, multimillion dollar ponzi scheme,” the complaint said.

Mr. Sirls’ Toledo attorney, Stephen Hartman, said that his client is a compulsive gambler. “Bill does have a gambling problem, which, frankly, can be just as serious as a drug or alcohol problem,” Mr. Hartman said.

In the complaint, Mr. Stoltmann, a Chicago securities attorney, alleges that irregularities in client accounts should have alerted Wachovia to the fraud, and that two Wachovia employees – Mark Schneider and Randy Hunt – profited in the real estate scheme. Mr. Schneider is a senior vice president and Mr. Hunt is vice president of Wachovia’s downtown Toledo office. Mr. Hunt took over the now-closed West Toledo branch after Mr. Sirls resigned.

“Wachovia did not protect their clients,” Mr. Stoltmann said. “Both my clients maintained accounts with Wachovia through the present. Even after Mr. Sirls resigned, he continued this scheme with my clients.”A high school classmate of Mr. Sirls, Dennis Pousak, also is represented by Mr. Stoltmann in the complaint. Mr. Pousak, a Northville, Mich., attorney, said he began investing with Mr. Sirls in November, 2005, in part, because of a friendship that began more than 25 years at Gabriel Richard High School, Riverview, Mich.

“Bill is a very gregarious guy. He is very smart. Bill was good at whatever he tried – from dunking the basketball to being a scratch player at golf. Anything Bill tried, athletically and academically, he excelled and exceeded with very apparent ease,” Mr. Pousak said.

The complaint alleges that Wachovia officials began investigating the volume of trading in Mr. Sirls’ personal accounts and issues in his personal life in the months before he left the company. Mr. Hunt said yesterday that he couldn’t comment on the allegations raised in the investor complaint.

However, he said that an internal investigation into Mr. Sirls has begun. “Beyond that, I cannot comment on the investigation,” he said.

Mr. Schneider couldn’t be reached for comment.

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On August 3, 2010, the North American Securities Administrators Association (NASAA) released its annual list of top 10 traps that investors know about.  NASAA President and Texas Securities Commissioner Denise Voigt Crawford said investors rebuilding nest eggs damaged by the market collapse as well as those frustrated with low interest rates are particularly susceptible to speculative investments that most often turn a promise for profit into thin air.

Top 10 Investor Traps

The following products and practices deserve special scrutiny:

Products

• Exchange-Traded Funds (ETFs). While ETFs resemble mutual funds in many respects, some, such as leveraged and inverse ETFs, may contain hidden traps and complexities, and may consist of highly leveraged bundles of exotic financial instruments, including options and other derivatives. Given their potential for volatility, leveraged ETFs may not be suitable for most retail investors. These types of ETFs are primarily designed for short-term trading (such as day-trading), and not for buy-and-hold strategies.  Also be aware that some ETFs are thinly traded and may not always be liquid.

• Foreign Exchange Trading Schemes. Currency trading and foreign exchange (forex) trading schemes can be particularly harmful to unsuspecting investors. Trading in foreign currencies requires resources far beyond the capacity of most individual investors. Promoters profit by charging high commissions or selling investment strategies assuming that trades are actually made. In some instances, salesmen and promoters who claim to have complex algorithms or propriety software programs which allow them to beat the market are actually just running Ponzi schemes. Too often, state regulators have encountered situations where there are no trades; the money is simply stolen.

• Gold and Precious Metals. High gold prices have trapped some investors in gold bullion scams in which a seller offers to retain “purchased” gold in a “secure vault” and promises to sell the gold for the investor when it gains in value. In many instances the gold does not exist. Investors have also been harmed by promoters pitching investment pools in precious metal commodities and gold mines.

• Green Schemes. Investment opportunities tied to the development of new energy-efficient “green” technologies are increasingly popular with investors and scammers alike. Scammers also exploit headlines to cash in on unsuspecting investors, whether from investments related to the clean-up of the Gulf of Mexico oil spill or the rising national interest in environmental innovations tied to “clean” energy, such as wind energy, wave energy, carbon credits and other alternative energy financing.

• Oil & Gas Schemes. Regardless of the price at the pump, fraudulent energy promoters continue to capitalize both on interest in the commodity and on oil and gas as investment alternatives to the stock market. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors who cannot afford the risk. Securities investments offering profit participation in oil and gas ventures can be legitimate, but even when the underlying project is genuine, any revenues realized can be absorbed by high sales commissions paid to the promoter and dubious “expenses” skimmed off by the managing partner. Some promoters, many of whom have had past run-ins with regulators, have attempted to structure their “joint ventures” or “general partnerships” to avoid securities regulation and deprive investors of important protections.

Practices

• Affinity Fraud. Scam artists have found it lucrative to abuse membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Typical affinity groups include religious, ethnic, professional, educational, language, age and any other group with shared characteristics that allow investors to trust members of the group. Rather than trusting a person or company due to a common affiliation, investors should seek further information about the investment from an unbiased, independent source, and review both the promises and risks.

• Undisclosed Conflicts of Interest. When obtaining investment advice about securities, investors need to know that not all advice is given with their best interest at heart. Some salespeople can receive lucrative commissions when they sell a product that is risky or inappropriate for an investor, but don’t have to disclose that financial incentive. Investors should demand that anyone giving advice or recommendations disclose how they are compensated.

• Private or Special Deals. Some investors encounter investment opportunities or deals couched as “private” or only for “special” clients. While securities laws do offer businesses the opportunity to raise capital by selling securities to a relatively small number of investors in a non-public offering, these securities are not subject to the same review as others. Many state securities regulators have seen continued or increased abuse of fraudulent private offerings made under federal exemptions or not regulated at all. Although properly used by many legitimate issuers, private offerings have become an attractive option for con artists looking to steal money from investors by promoting the special or private nature of these schemes and by making false and misleading representations.

• “Off the Books” Deals. “Off the books” sales are an increasingly common threat to investors. Be cautious if your broker offers an investment on the side instead of one sold through his or her employer. These “off books” investments may not only be illegal, but they can also be especially risky without the oversight and supervision of the broker’s employer.

• Unsolicited Online Pitches. Promoters of fraudulent investment schemes are moving beyond e-mail and turning to social media and online communities, such as Facebook, Twitter, Craigslist and YouTube to solicit unsuspecting investors. Some may use these sites to spread misinformation to artificially inflate the value of stock before selling in a “pump and dump” scheme. Others may promise high-yield, tax-free returns from investments in offshore markets. Once the money is sent to another country and is in someone else’s control, investors may not be able to get it back. In many cases, these offers turn out to be Ponzi schemes. Investors should approach any unsolicited investment opportunity with suspicion.

The above list is a reprint of the NASAA article.  This information is important to share with all investors, but there remain concerns that investors are not able to decipher the information obtained from a broker or investment promoter.  For that reason, Wittenberg Law has created the affordable Investment Scam Prevention ProgramTM, which is designed to assist all investors evaluate their investment portfolio or a prospective investment opportunity.  Every investor now has a choice and must ask him or herself whether spending approximately $400 to have a securities lawyer evaluate an investment for red flags of fraud is worth the potential loss of the entire investment because the investment turns out to be a scam.

Call Jeffrey Wittenberg, Esq., at 877-352-2010 for an independent, conflict-free, sophisticated evaluation from a legal perspective.