September 11, 2013 — Retirees trust investment advisors to manage their portfolios responsibly and ethically. But when advisors actually steal from the investors who rely on them, they should be reported to the financial fraud whistleblower program set in place by the Dodd-Frank Act of 2010. Tipsters who notify the Securities and Exchange Commission (SEC) about financial schemes involving theft from investors may be compensated for collaborating with the agency. Whistleblowers receive up to thirty percent of the amount recovered by the government, so long as the recovery exceeds $1 million.
Investors’ Retirement Savings Allegedly Diverted for Failed Start-Ups and Hollywood Entertainment
The SEC has charged an Indiana man and his company in connection with a Ponzi scheme that allegedly took in more than $6 million. John K. Marcum and Guaranty Reserves Trust (GRT) allegedly targeted investors’ retirement savings accounts in a plot designed to relieve investors of their retirement savings.
In 2010, Marcum’s company, GRT, issued promissory notes that Marcum offered to investors. According to the SEC, Marcum proclaimed his success as an investment advisor, including his ability to achieve returns between 10 and 20 percent. The promissory notes were guaranteed, Marcum allegedly assured investors, and their principal was never at risk. Marcum would use his market expertise to make day trades of stocks to increase his client’s portfolio value, he allegedly claimed. In one case, Marcum is alleged to have told a client that the funds were federally insured. As a result of his promises, Marcum raised $6 million by inducing his clients to transfer or create IRA accounts consisting of GRT promissory notes.
As investors later learned, Marcum rarely did day trades, and on the trades he did make, he allegedly lost $900,000 of his clients’ money. To conceal his losses, Marcum provided clients with fraudulent statements showing fictitious returns of 20 percent or more. At the same time, Marcum allegedly secured a $3 million line of credit by pledging his clients’ money as collateral for the loan. He spent $1.4 million of the line of credit on new business ventures such as a reality television show featuring a bounty hunter, a soul food restaurant and a bridal store. All the new business investments, however, were unprofitable.
Marcum allegedly spent another $500,000 from the line of credit on a lavish lifestyle including trips to Los Angeles, tickets to sporting events and entertainment at a Hollywood nightclub. Marcum failed to disclose any of this to his clients, the SEC alleges, until 2013 when Marcum revealed to some investors that he was unable to return their funds.
The SEC has obtained a court order freezing all the assets of Marcum and GRT and is seeking a disgorgement of the funds allegedly bamboozled from Marcum’s clients.
Whistleblowers Collaborate With SEC to End Fraud by Financial Advisors
Employees working for investment firms are the most likely to uncover illegal schemes to defraud investors. Before notifying the government, insiders should make certain that they understand the Dodd-Frank whistleblower program. Many employees, for example, would like to remain anonymous. These informants must work with an attorney since they cannot contact the SEC directly without making their identity known to the public. The SEC fraud lawyers at Waters & Kraus understand how to protect whistleblowers’ rights in cases of fraud against or theft from investors. Contact us by email or call our securities fraud attorneys at 800.226.9880 to learn more about your rights and interests.