5 Ways to Spot a Fraudulent Investment Adviser
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The Fiscal Times
June 5, 2014

Scott Valente, an investment adviser in Albany, New York, used $9 million dollars he promised to invest on behalf of his clients and instead, remodeled his house, made his mortgage payments, and even bought jewelry and a vacation condo.

The scam was recently unveiled by the Securities and Exchange Commission, which charged him for lying to clients about the success of their investments.

“Valente used his one-man advisory firm to fraudulently lure unsuspecting investors in the Albany and Warwick communities to invest millions of dollars with him as advisory clients,” said Andrew M. Calamari, director of the SEC’s New York Regional Office, in a press release. “He said all the right things to make investors believe he was making the right investments and taking the right precautions with their money, but he was merely telling blatant false tales about the safety and success of the investments.”

Related: The 5 Worst Money Mistakes of Millionaires

Valente and his firm the ELIV Group would hold informational seminars to lure potential investors by telling them that the principal amount of their investments was fully backed by a large money market fund, while in fact there was no such fund and the majority of ELIV Group’s funds were in illiquid investments in privately-held companies. Additionally, Valente had already filed twice for bankruptcy and was expelled from the broker-dealer industry in 2009 for engaging in serial misconduct.

Investment frauds are a common occurrence in America, but you don’t have to be the next victim. Here are five red flags that can help you spot a fraudulent investment adviser:

  1. The investment adviser isn’t registered with the SEC or the Financial Industry Regulatory Authority. You can check advisers’ registration information for free on FINRA’s website, which also lists a history of complaints. A quick search for Valente showed he hasn’t been registered since 2009.
  2. The adviser guarantees consistent high returns. Valente notes on his website that the ELIV Group Investment Fund has returned a five-year average annual return of 34.5 percent. This is more than twice the five-year average annual return of Warren Buffett’s Berkshire Hathaway. If it’s too good to be true, it’s probably a scam.
  3. Investment strategies are overly complex. You should always be able to easily understand what the adviser plans to do with your money, including the risk involved.
  4. The sales pitch is a bit too pushy and leads you to believe that you have to hurry to take advantage of a certain investment opportunity. You should never feel pressured to make a quick decision when your money is at stake. Take your time and talk about the opportunity with a reliable third party.
  5. All your friends have already hired this adviser. Working their way through an organization or a group of friends is a common tactic of fraudsters who rely on our fear of failure to keep up financially with our peers. Remember Bernie Madoff!

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Marine Cole has been covering finance and business for a decade and has written for publications that include The Wall Street Journal, Crain's New York Business, and AdvertisingAge.