How A Reader Was Taken For $200,000

A regular reader of this blog sent me an email describing how she and her husband had been defrauded of $200,000. She agreed to have her story posted here. I’ve changed some names, but the story is absolutely true and absolutely heart-breaking.

Dear Preet,

This is in response to your blog post: http://www.wheredoesallmymoneygo.com/earl-jones

I love your blog. Definitely one of my favorites. I have no idea what you want to do with this information. I am completely okay with you sharing it. It is quite cathartic to write it out and see where we’ve been.

Current situation:

We have just had our dealer/agent removed from our account. It takes a great deal of work (I worked on it off and on for about 6 months). We no longer have the unregistered agents on our account although I believe that other people have them on their accounts.

History:

I have a long sad story about the beginning of our investment career. We were defrauded of $200,000 by John Doe out of Quebec and his partners John Doe II and John Doe III. They are being investigated (with our help) by the RCMP. There is also a civil case in progress to sue the Errors and Omissions Insurance Company because John Doe was a registered Mortgage Broker and John Doe II was a CA. The reason I am telling you this is because we have a bit of left over yuckiness due to that bad investment. John Doe II invested our money in an investment account. The account dealer/agent is Jimmy Financial, his daughter Jane Financial is also an advisor. Neither of them show up in that Ontario Database. Their company is Investment Company One (Jimmy Financial) and Investment Company Two (Jane Financial). The addresses are as follows:

***Omitted*** But both companies are registered to the same building. ****

Now we didn’t have any clue that the the dealer/Agent was at all associated with John Doe I, John Doe II, or John Doe III until Jimmy Financial hired an assistant or another agent (I am not sure what her qualifications are) who was John Doe I, II, and III’s assistant — Debbie Dallas, who the RCMP guy let slip is also under investigation. At that point I tried to take Jimmy Financial and Jane Financial off of our account. It took some doing because most of the account was loaned out to people for their mortgage (self-directed mortgage) and we could not simply close or transfer the account. As well it was complicated by the fact that the company that administers our account only deals with dealer/agents (but is not allowed to recommend any), another Ontario department is supposed to recommend replacement dealer/agents but they did not have any way to know which ones handle the kind of investments we are using. Eventually instead of replacing the dealer/agent we are now represented by the account administrator’s general helpline. I cannot buy stocks or mutual funds until I get that fixed but that is a problem for another day.

Click Here for a related CTV W-5 story.

Thank you for letting me share the story.

That is gut-wrenching just to hear, I cannot imagine actually going through a situation like this. My heart goes out to you, and I hope others are inspired to double check their advisor’s credentials after having read this post.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 13 comments
  • Steve

    Hi Preet,

    I just read your story about the Langfords and although I feel for them because they got taken for all their money, I also wonder “how gullible could you be”. You have been in the investment business for a long time and you have to agree with me that these people made many dumb mistakes. First, they bought into a late night infomercial for thousands of dollars. Who does that? Those people are selling you something and are not real financial advisors. Next they gave all their life savings to someone who would buy them one property. Who invests their life savings in one property – particularly one where you don’t get your own appraisal? I can believe that people think investing in one property is less risky than investing in a mutual fund. Next they believe they will get their money back in 3 months. How can this be true if they are buying property? That’s a long-term investment, not 3 an investment for 3 months. How can you believe that you will invest in a property now and sell in 3 months and you will be rich? Lastly, they moved their money to a private company owned by the 3 partners thinking it was within their RRSP. Why would you ever invest money where the cheque is payable to their advisor’s private company rather than the investment company or dealer? That’s exactly what happened in the Earl Jones scam. The problem here is that I don’t know why they needed to invest in this. Both couples profiled seemed to have enough money to retire. Why try to be greedy? That’s what this is all about – greed! Both from the 3 partners who scammed their clients and from the clients themselves.

  • Preet

    @Steve – I agree with many of your points, but how many investors who use a proper financial advisor have any idea what they own? A sophisticated, or even a moderately experienced investor should not have fallen for any of these traps, but the vast majority of the public are absolutely clueless with respect to the investment world and most advisor-client relationships are built around blind trust and nothing more.

    Lack of investor education, the bulk of advisors being paid as salesman, and lots of trusting people are but some of the ingredients that make fraud more common that it should be.

    How many institutional investors got taken by Madoff? What’s their excuse? Maybe they are just victims and the system needs to protect everyone better.

  • Thicken My Wallet

    Preet- your response to Steve seems to indicate that the “system” will take care of everyone but whatever happened to self-reliance? Regulators are always fighting yesterday’s battles; it is the nature of the beast. To demand that regulators are responsive and active will simply unleash big brother so we can’t have it both ways. The only way we can have it is to trust no one but yourself which, in this culture of detached responsibility, is a tough sell.

    I can’t really speak to the reader’s letter other than to wish them the best.

  • Preet

    @Thicken My Wallet – No, I want to stress that I agree with many of Steve’s points – people need to take more onus for their decisions and relationships. It would be nice for the system to require advisors have more than a few weeks of self-study in order to become advisors, yes – but lots of investment fraud happens outside of the system – for example Earl Jones. And it is true that the best way to defend against that is to educate yourself. But we need to teach this somehow too. A LOT of people are just overwhelmed with the deluge of information. In this case when I say “system” I mean everything, not just the financial services industry.

    Perhaps people should be required to get an investing license, like a driver’s license. It doesn’t have to be a grandiose test, but perhaps something that just identifies the glaring risks like the ones Steve identifies, basic information on how to check if an advisor is registered, common financial fraud schemes, etc…

  • Steve

    Preet – I agree with your point that most of the investing public has no clue what they own, but is ignorance really a valid excuse? People say that they just don’t understand it, but if they looked at their finances for more than 30 minutes a year they might actually understand what they own. If someone wants to own more than a basic GIC or average Canadian Equity fund, don’t they share some responsibility in understanding what they are getting into? It isn’t rocket science. I still think these people got sold on a get rich quick scheme and now they are crying the blues. Don’t get me wrong, I think what this firm did to these people is despicable but it’s like someone offering you a brand new Mercedes for $10,000. If you buy it and then find out that it was stolen, should you not at least take some of the blame? And I think this is the same for the institutional investors getting caught by Madoff. They better hope that their clients don’t sue them over the fraud. If they did more thorough research into what they owned then they would have seen what was going on. They were just like the couple in your story – blinded by the greed of great consistent returns with no risk.

  • Preet

    @Steve – no, ignorance is no excuse at the end of the day. But I am not content to write it off to people to take it upon themselves simply because they should – because they won’t. And there are a lot of good people out there. I can’t simply stand by and watch it happen without at least voicing what may not be the best solution, but a step in the right direction for the benefit of more people. But then again, I’ve always been a bit of an idealist. :)

    Thanks for your comments – appreciate them, and your point of view. I cannot really say I’ve countered your points effectively, more of wishful thinking on my part.

  • The Person that wrote the article

    I think there was a lot of greed going on. I am certainly not saying I was innocent of this. I remember of dreaming of early retirement. We were in our 30s at the time. I was suffering mania/depression due to bipolar at the time. We thought we were crossing our t’s and dotting our i’s. We thought we were really careful. But when someone is lying to you with a documentation trail, you really have no chance. I actually met a VP or director from CMHC that assured us that this was not a scam.

    I don’t know if Preet included this note. I take the blame fully. It was not anyone else’s fault. I am actually glad we’ve gone through this. Hubby and I believed that all people were truthful, that all people were kind, that scammers didn’t exist. Kind of Pollyanna, but since then we’ve learned that there are ugly-inside people out there, but we choose to believe the best in people. We just don’t give them our money.

    I have been making 15% to 20% on my money since this time, so the rates they were telling me weren’t impossible. I’ve just learned that I must be a lot more aware of my money and know what the risks are for a high return.

  • Ink-stained gorilla

    95% of the time you cannot blame the clients for these types of scandals.

    There are lot of unscrupulous salespeople out there who are both very intelligent and persuasive. It doesn’t take much to part most people with their money. Majority of investors chase returns with a much higher risk profile than they realize.

    A lot of advisors – not to mention clients – still don’t comprehend that any return above and beyond a U.S. Treasury bill yield is taking on extra risk. The whole subprime fiasco resulted from essentially institutions chasing an extra 50 basis points of return on fixed income instruments.

    There’s actually a lot of debate going on within private client portfolio management circles that the core holdings need to be extremely conservative. You build have other buckets built for different goals that have different risk profiles.

    Anybody going after returns greater than a guaranteed annuity needs to understand they run the risk of losing it all. Will they? Probably not if it’s intelligently invested. The concept of risk and loss is still not being impressed upon clients.

    Behavioural finance studies are continuously showing that the true risk tolerance of clients is not matching up with the investments they are in.

  • Finnews

    Terrible fraud really. The financial crisis caused too much problems for the companies, and their employees felt this most of all.

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  • […] News Sources wrote an interesting post today onHere’s a quick excerptA regular reader of this blog sent me an email describing how she and her husband had been defrauded of $200,000. She agreed to have her story posted here. I’ve changed some names, but the story is absolutely true and absolutely heart-breaking. Dear Preet, This is in response to your blog post: http://www.wheredoesallmymoneygo.com/earl-jones I love your blog. Definitely one of my favorites. I have no idea what you want to do with this information. I am completely okay with you sharing […]

  • […] Random Feed wrote an interesting post today onHere’s a quick excerptA regular reader of this blog sent me an email describing how she and her husband had been defrauded of $200,000. She agreed to have her story posted here. I’ve changed some names, but the story is absolutely true and absolutely heart-breaking. Dear Preet, This is in response to your blog post: http://www.wheredoesallmymoneygo.com/earl-jones I love your blog. Definitely one of my favorites. I have no idea what you want to do with this information. I am completely okay with you sharing […]

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