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Tips on Avoiding Fraud

April 26, 1987

Re "Imposing Financial Adviser Lived the Good Life While Some of His Prominent Clients Are Left Shattered" (by Nikki Finke, April 19): Your informative article regarding Stephen Henry's admitted embezzlement of more than $4 million could have gone a little further in offering some advice regarding how readers can avoid getting into the sad predicaments shared by Henry's clients.

While it might be true that "they did not do anything to invite the embezzlement," it is quite clear to an investment professional that there are a number of simple steps potential clients of financial advisers can take to avoid becoming victimized by fraud.

While it is reasonable to assume that a successful adviser will have obtained some degree of success with his own money, a flashy life style is no guarantee of that; on the contrary--if someone acts like the West Coast distributor of money, it can mean that he has never saved enough to invest himself, or that the money he is distributing is yours.

If you are choosing an adviser on the basis of his impressive credentials, why not check them out? How much trouble is it to call his prestigious alma mater and ask if he did indeed receive a degree, or if he ever even attended classes there?

Above all, listen to what he tells you very carefully; you will rarely catch an untruth in written literature provided to you, because it is very well thought out in advance. By listening to what an adviser says, you may find contradictory claims, or claims which you can check on by yourself later. Don't invest with someone just because your next-door neighbor or your rich uncle does; they might be more gullible than you.

The best advice is that given by Dr. Elvin Oblander, one of the victims quoted in the article--"Don't ever trust anybody." If your funds are being invested through a bank, you should be getting statements from the bank. If you are investing in the stock or bond markets, you should be getting statements from a broker or a mutual fund in addition to those you get from the adviser. Even if you are getting official-looking statements, pick up the phone once a month and call the depository of your funds and ask, "What is the current balance of my account?" If you are dealing in real estate, go to the trouble of checking the county records to see how the title of the property is registered.

It is sad but true that our profession has its share of unscrupulous people, but no law or government agency can take the place of diligence on the part of the investor.


Seal Beach

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