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Due Diligence on Your Broker/Advisor? We Show You How…

How to do basic due diligence on your broker
POSTED: Monday, July 13, 2015
How can we investigate whether our Wall Street broker is a bad actor before we lose money?

Let’s take the case of Malcolm Segal. The Bucks County man was charged last week with swindling people out of $1.8 million through an investment scam that promised unusually high rates of return, according to the federal indictmentagainst him in U.S. District Court in Philadelphia.

What could investors have found on Segal before giving him money?


Fiduciary Oath
A quick review of the BrokerCheck.org database, maintained by the FINRA securities regulator, reveals customer complaints dating back years.

Do some basic due diligence on your broker via BrokerCheck (brokercheck.finra.org) and via the Securities and Exchange Commission’s Investment Adviser Search, another database (www.adviserinfo.sec.gov).

Type in his or her name or firm. Pay close attention to “Disclosures” outlining disciplinary history.

“When you see something like Segal’s background,” said Kathleen McBride, founder of FiduciaryPath in New York City, “to me it indicates it’s a pattern with his previous and current firm. If you see disclosure events like that, proceed with extreme caution.”

Red Flag No. 2: Returns that are too good to be true.

Segal claimed the CDs he sold paid up to a 12 percent annual interest rate for a two-year investment of $100,000. Instead, Segal allegedly spent the money to pay off earlier investors in what authorities say was a $15 million Ponzi scheme.

“With an average CD rate of under 1 percent, someone who is offering a CD at a guaranteed rate of 12 percent is offering a product that is too good to be true,” Louis D. Lappen, the first assistant U.S. attorney in Philadelphia, said in a statement.

“Why buy CDs from a broker and pay a commission, when you can buy them from a bank directly?” McBride said. “Something didn’t smell right about the high returns.”

Red Flag No. 3: Wall Street firms sometimes hire tainted brokers, who scuttle from one brokerage to another despite disciplinary records with FINRA.

BrokerCheck and the SEC’s investment adviser database have a wealth of information about the firms employing shady brokers. Despite his record, Segal kept finding new jobs.

“Segal and others remain in business because someone will hire them, as long as the regulators don’t suspend or revoke hislicense,” said Philadelphia securities lawyer Nick Guiliano, who sues brokers and brokerage firms on behalf of aggrieved investors.

Guiliano and his law firm are investigating whether Segal engaged in unauthorized sales of certificates of deposit to Aegis customers.

“Aegis has a duty to supervise him and is responsible for his conduct,” Guiliano said. “Segal actually disclosed that he was president of J&M Financial and partner of a company called National CD Sales. That should have raised a red flag to Aegis as an outside business activity. Aegis was supposed to come to Langhorne and do an audit.”

Guiliano has sued Aegis before on behalf of other investors.

One area broker Guiliano is suing had seven complaints against him with regulator FINRA and had been fired from two firms, while another broker had outstanding tax liens and had bounced several checks over the years.

Nicholas C. Harbist, Segal’s onetime lawyer from the Center City law office of Blank Rome, said he hasn’t entered an appearance as Segal’s defense lawyer in this case. Segal did not return calls seeking comment. A trial date for Segal is set for Sept. 9 in federal court in Philadelphia.



215-854-2808 @erinarvedlund
Read more at http://www.philly.com/philly/business/20150713_How_to_do_basic_due_diligence_on_your_broker.html#vT8uf3bQjFq5CUbA.99

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