High-net-worth investors could be a more likely target for investment fraud.
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Are high-net-worth investors more at risk of suffering investment fraud because of their wealth?
Attorney Niel Prosser of Prosser, Clapper & Johnson Law of Memphis, Tenn., believes they might be. Prosser, a litigator, explained that those with wealth can be at the greatest risk of possible fraud.
A Litigator’s View
This is a position that I personally have not seen taken. However, Prosser’s experience is far different than mine. Although we both started out on Wall Street as lawyers, my experience was with investment companies, investment advisers, and holding company matters.
Prosser earned his Wall Street spurs as head of litigation at Morgan Keegan & Company, a large regional broker-dealer. According to his website, Prosser “has seen nearly every facet of investor and broker litigation – disputes spanning thousands to billions of dollars.”
Do High-Net-Worth Clients Lack Fraud Protection?
Given that background, you might be interested in Prosser’s perspective. Prosser says that Wall Street firms treat high-net-worth clients as if they can protect themselves from investment fraud.
“The compliance departments at the big firms tend to think wealthy investors are knowledgeable and sophisticated based upon their wealth alone and can thus look out for themselves.” He continues: “Many of these investors, however, know little more about investing than the average Joe or, if they do, are preoccupied with their business or profession.”
Further, he believes that “The bad brokers at these firms know this well and hence it can be open season on these investors.”
That’s something to think about.
Avoid Big Wall Street Brokerage Firms?
The question is, what do you do with this information? Avoid big Wall Street firms?
Hardly. “The vast majority of brokers at well-known firms are reputable,” explained Prosser.
“The converse, however, is also true — there are bad apples even among the most well-known firms.”
Searching for Examples
If you look, you can easily find examples. Just do an internet search of brokers barred by FINRA, the Financial Industry Regulatory Authority, which regulates the brokerage industry.
Also do a search for Prosser’s cases, which include a $7.5 million win for a customer of a major, well-known brokerage firm.
The bad apple broker in that case was listed in Barron’s Top Advisor Rankings by State for seven …….