Once upon a time, financial advisors who unknowingly got ensnared in investment schemes could get off by pleading, "I didn't know." Those times may be over.
According to Pat Huddleston of Investor's Watchdog, an investor-protection firm in Kennesaw, Ga., the SEC recently used an enforcement case to "re-emphasize that a salesperson can be liable for not investigating to learn what he is selling and for not heeding red flags that should have tipped him off."
"I know how the story goes in every Ponzi scheme case," says Huddleston, a former SEC enforcement official. "The creator of the scam goes to prison and the brokers who sold the investment all say, 'I didn't know it was a fraud. I was relying on what [the Ponzi artist] told me.' "
In the case in question, the SEC filed a settled civil action against John N. Irwin, a Villanova, Pa. CPA, and his consulting firm, Jacklin Associates, for participating in a $75-million Ponzi scheme perpetrated by Joseph S. Forte, LP of Broomhall, Pa. Forte collected some $75 million from more than 100 investors by misrepresenting the use of invested funds, investment returns and investor account balances. He later pled guilty to charges of wire, mail and bank fraud, along with money laundering, and was sentenced to 15 years in prison.
