What is the liability of brokers in the United States in presenting HYIP’s to prospective investors?
Brokers Beware! There is absolutely no way for a broker in the United States to lawfully present to an investor a high yield investment program as described above. This applies to private placements as well as the many unintended public offerings; i.e. the broker breaches the law by unknowingly violating the prohibitions against public offerings without complying with the Federal and/or state securities statutes. And it is vital for brokers to understand that if they do anything (called an “overt act”) with regard to passing on to other brokers or investors representations (written or oral) of (a) “no risk” deals, (b) implied but untrue ownership of MTN’s, or (c) earning extraordinary profits as described above, they become a co-conspirator and are criminally liable for felony prosecution (including money laundering). So, if you are a broker in this business with products as described above, you are involved in a criminal enterprise.
Unlawful Agreements. It is also important to note that because the agreements to provide HYIP’s are to provide an unlawful (non-existent) product, the contracts are illegal and unenforceable, including the agreements for compensation to the brokers. So the broker cannot even sue for the commissions that he didn’t earn on the non-existent investment. This is not a smart business in which to engage, civilly or criminally.
Some Advice For Brokers. I am often struck by the sad situation where naïve brokers without any criminal intent whatsoever find themselves suddenly in very serious legal trouble believing in their innocence, because they followed all the precautions they learned from other brokers. So here is some additional advice. Other than to stay away from the HYIP business, there are two good pieces of advice to consider. First, do not keep any copies of instruments anywhere within your apparent control (including your computer), because if you possess a fraudulent document this may be (a) itself a crime and (b) very condemning evidence against you for other related crimes. Second, if you are approached by law enforcement regarding your activities, do not try and explain your way out of the problem. You can’t do it! It is impossible. Say nothing! They do not care to hear about your innocence. They are only there to make a case against you. Whatever you say, will be taken adversely to your interests…no matter how innocent you think you may be. That is their job. Tell them you will speak to them only after you have consulted a lawyer; this is your Constitutional right…use it!
Pooling Investors. If you are a broker and you are involved in any manner (i.e. it’s called “conspiring”) combining the investments of two or more investors into an “investment pool” to invest in a HYIP, then seek immediate legal help with the goal of extracting yourself from this illegal position. You may or may not be successful in such extraction procedure, but it may help you at sentencing time; i.e. the judge will know that you at least tried to unravel your participation in the unlawful transaction. This is an absolute “no-no”. There is legal liability even before you begin paying investors on a Ponzi Scheme.
Checking Authenticity of Bank Instruments or Documents. The ICC states: “Anyone offered an investment opportunity supported by a financial instrument can have it checked out by the CCB for a nominal cost. Call +44(0) 208 591 3000 or e-mail ccb@icc-ccs.org.uk for details.” Big warning! What one (other than a very careful and knowledgeable attorney) must NOT due is to walk into a bank (including branch offices) with a bank issued instrument or letter to check on its authenticity. There is a high probability (a) the instrument or letter is fraudulent, and (b) therefore one will be arrested “on the spot”, and that probability substantially increases if one is a minority; e.g. African-American, Hispanic, from the Mid-East, etc. It is also important to note that you not tell any authenticating bank that you would like to borrow against the instrument if the instrument is authentic, as they will consider this part of perpetrating a fraud on them. You can be in such trouble so quickly that you won’t know what hit you until you are bailed out of jail…if you have the money to pay bail.
What about lawyers' trust accounts and high yield investment program transactions?
· This is advice for both investors and lawyers. Often the investors funds will be placed in a law firm’s trust account as one step in a high yield investment program transaction. This tact is to give the investor comfort and confidence. For investors, this should never be allowed, because the lawyers do not understand these transactions any more than the investors and most of the brokers, and the lawyers will be “conned” out of the investors’ money. This happens over and over again. This is true regardless of how large or prestigious the law firm may be. The lawyer, obviously, will be civilly liable for the investor’s funds, but he will also be a co-conspirator under criminal statutes.
· Also, it is important to note, that there are many cases where the lawyers are the fraudsters behind the scheme; so be aware of lawyers offering HYIP’s. As to being able to collect against lawyer’s malpractice insurance coverage, this is problematic as most policies have exclusions for “business transactions” and for business fraud. Upon conviction of the lawyer, in some states the investor can collect against the State bar client security fund, but these recoveries are severely limited; e.g. $50,000.
· Special Warning To Lawyers. Lawyers get indicted as co-conspirators for doing very little with regard to these scams. For instance, one attorney that knew nothing about the scam nature of his client’s business was paid $15,000 to form an offshore company. The attorney’ sole involvement was to form the offshore company by hiring a local Caribbean attorney to do the actual formation work; his client was indicted as was he. He is presently serving 97 months in a Federal Penitentiary for money laundering after being convicted by a jury along with several other defendants. Be particularly careful if you are a Democrat.
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Very generalizing article which does not care about the finer tunes, but in general right, there are ways around the restrictions but frankly liabilities are always an issue when you offer and broker and the environment is open to the public and the government, one of the reasons we don't do this with just anyone.
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