In an effort to bring attention to the problem of investment fraud, Hawaii Securities Commissioner Tung Chan on Thursday highlighted cases in which swindlers committed financial wrongdoing.
One case, originally filed in 2006, involved Honolulu residents Joseph W. Sullivan and Chad S. Morisato, along with their business, The Swiss Group. They conducted a Ponzi scheme that fraudulently solicited $8.1 million from investors in Hawaii and on the mainland. They used false credentials to attract investors. Sullivan also joined credible organizations like the Rotary Club of Honolulu. In the end, they were caught, received a $1 million fine for violations and ordered to rescind approximately $8.1 million in illegal investments, as well as repay investors, Chan said during the Outsmarting Investment Fraud workshop in Kailua-Kona.
During her speech, Chan warned attendees to be careful of affinity fraud, which is all about connections and relationships. She said con artists who are typically likable and savvy, gain access to money by gaining the trust of tight-knit groups or use others to connect with vulnerable investors. Basically, they use relationships of trust to get people to buy into their fake investment products.
“It’s human nature to trust people who are like you or are likable. You can like them, but that does not mean you should give them money,” she said.
Chan reassured the audience that there are several ways to avoid affinity fraud, but also stressed it usually takes someone standing up, whether they have been victimized or not, to put a stop it. She advised the public to ask for and independently verify the registration status of the professional and the investment; understand exactly how the investment works; ask hard questions; get everything in writing; and don’t buy anything solely based on friendship or reputation. Chan also encouraged the public to report fraud, even if embarrassed, because it could help save not only you and your family money, but others from financial loss and heartache.
Thursday’s free workshop was one of several held statewide by AARP, a nonprofit, nonpartisan advocacy, education and service for people age 50 and over. It has 147,000 members in Hawaii. The goal of the workshops was to help protect the hard-earned assets of Hawaii’s families. Presenters and organizers hoped attendees will later share what they learned with others, said Chuck Reindollar, a Honolulu AARP volunteer and the workshop’s moderator.
Approximately 100 people attended Thursday’s workshop at King Kamehameha’s Kona Beach Hotel. Participants learned about fraudulent schemes, protection steps, how to verify if investment professionals are legitimate and what to do if investment fraud is suspected.
Besides Chan, the other speakers were Christine Kieffer and Bud Schneeweis of the FINRA Investor Education Foundation; Lori Schock of the U.S. Securities and Exchange Commission; and Russel Subiono of Hawaii’s Better Business Bureau.
Based on an analysis of more than 300 undercover fraud tapes, there are five most frequently used persuasion tactics by con artists, according to Schock, who showed videos from the TV show Candid Camera to illustrate her points:
Phantom riches — dangles the prospect of wealth and enticing you with something you want, but can’t have,
Source credibility — tries to build credibility by claiming to be with a reputable firm or to have a special credential or experience,
Social consensus — leads you to believe other savvy investors have already invested,
Reciprocity — offers to do a small favor for you in return for a big favor, and
Scarcity — creates a false sense of urgency by claiming limited supply.
For more information, visit saveandinvest.org/fraudcenter.