ICC Commercial Crime Service

Investment Fraud: Look Beyond Adviser Websites Before Investing

Investors who bought at least $5.6 million in two unregistered investment funds must have been shocked last week when the U.S. Securities and Exchange Commission (SEC) announced that it was charging a Florida man, an unregistered investment adviser, with defrauding his clients by manipulating search results on the internet and creating a false identity. The story is a cautionary tale for potential investors across the globe. As the world relies more and more on the internet for research, fraudsters are using the information super highway to take potential investors to the cleaners.

According to the SEC, Steven Zoernack, 53, hired a company to create an elaborate history of career successes and charity work in order to attract investors, while using search results to hide a criminal past. Between May 2010 and March 2014, Zoernack, and his company Equity Star, offered and sold the funds, defrauding more than 40 investors in 20 states and abroad. He then illegally withdrew more than $1 million in fund assets.

Given the reality of schemes like Zoernack’s, what should investors do to protect themselves? Follow these steps before investing:

. Verify the investment adviser’s identity, client references, qualifications, track-record, registration and compliance requirements.

. According to the SEC, you should ask your state securities regulator or the Financial Industry Regulatory Authority (FINRA) to provide you with information about the broker or investment advisor from the Central Registration Depository (CRD). The CRD is a computerized database containing information about most brokers, their associates, and firms. CRD can tell you if brokers are properly licensed in your state, if there are complaints against them by investors or if they have had disciplinary problems from regulatory authorities. You can also find accurate information about where they worked and received their educations. Contact information for your state securities regulator is located on the website of the North American Securities Administrators Association. To contact FINRA, visit FINRA’s BrokerCheck website or call FINRA’s toll-free BrokerCheck hotline at (800) 289-9999.

What if you’ve already been defrauded by an investment firm?

. Cease contact with the firm and its representatives

. Gather all documentation from the transaction(s) and file with the authorities to initiate or collaborate with the corresponding investigation. Victims hold valuable information about the modus operandi of the scheme, such as addresses (physical and electronic), personal communications, telephone numbers, calendars, service standards, and other references. This information may serve to support the tracing of funds defrauded and aid in seeking potential restitution.

. To recover your stolen assets, particularly if the fraudster may have hidden the funds in other countries, quickly contact an attorney who specializes in asset tracing and asset recovery. The longer you wait, the harder the funds will be to recover. To find a reputable attorney in your area, consult Chambers Global, which provides extensive information about leading lawyers and their practices and covers 190 countries across the world.

Rodrigo Callejas, partner with Carrillo y Asociados focuses on Insolvency, Fraud, Asset Tracing and Asset Recovery. He has actively participated in complex white-collar crime investigations in Central and South America, United States, the Caribbean and Europe.

The author gratefully acknowledges the assistance of Emanuel Callejas in preparing this article.





ICC Fraudnet is an international network of independent lawyers, who are leading civil asset recovery specialists in each country. Recognized by Chambers Global as the world’s leading asset recovery legal network, our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit.