Thanks to my friend and fellow securities lawyer Mark Astarita in New York for highlighting a recent SEC against against a former broker and investment advisor. And, if you're not following Mark's blog, you should. He's a pioneer in this area, and authored the first blog I recall seeing on regulatory matters.
The SEC announced earlier this week that it filed civil charges against former broker and investment adviser Frank Bluestein in connection with the Edward May ponzi scheme. According to the SEC's press release, Bluestein was the largest seller of the ponzi scheme, raising about $74 Million from over 800 investors. The SEC alleges that Bluestein targeted elderly and/or retired folks to purchase the "investment" and recommended that some of them refinance their homes to gain access to funds to make an investment. The Complaint alleges that Bluestein pitched these investments as safe and guaranteed, when they were not. The SEC's Complaint can be found here.
In its action, the SEC also asserts that Bluestein misrepresented the due diligence he completed on this product and that he failed to do any meaningful due diligence, even when faced with red flags about the investment.
I agree with Mark that it appears that the regulators are upping the ante on the due diligence issues and that this area is becoming a focus area in investigations and examinations, as well as in arbitration cases. Firms and brokers should review their due diligence obligations under the various rules and regulations governing the industry, and make sure that their due diligence is being performed adequately and completely, or be prepared to face the consequences.
