By Christopher Pugh, Fall 2014 Student Intern
The SEC recently charged two Florida-based attorneys with receiving wired funds from elderly investors. The funds were destined for a Ponzi scheme. The investors were allegedly scammed by a Colorado-based company making cold calls that promised investors high yields on their investments, then the money was paid to keep a Ponzi-like scheme afloat. The two attorneys charged, Jonathan P. Flom and James L. Schmidt II, only kept two percent of the funds transferred to their firm, and were not directly involved with the alleged Ponzi scheme. But, according to the SEC, the association of their firm name and credentials bolstered the credibility of the alleged fraudsters.
“Attorneys are critical gatekeepers in our securities markets, and Flom and Schmidt enabled a scheme to occur by using their legal credentials to add the appearance of legitimacy as they collected investor funds,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “We will continue to aggressively seek out and prosecute lawyers who abuse their positions of trust and serve as conduits to fraud in our markets.”
The lesson for attorneys is to make sure your clients are not using your credibility to enhance their own for illegal gain because the attorney can easily be implicated in the wrong-doing and charged.
For investors, the lesson is that just because some element of the investment opportunity seems legitimate does not mean that it is legitimate. Investors should be aware that sometimes reputable individuals are associated with a fraudster and do not know, and sometimes they know and lend their credibility anyway. Put differently, just because you see a lawyer’s or law firm’s name associated with the deal does not make it automatically legitimate. Investors should look beyond this and always investigate potential investments fully.
For more information, check out the full story on SEC.gov.