Where to look to spot fraud

With bank and automaker CEOs taking most of the heat this year, it’s been a while since we’ve had an alleged investment firm scandal leading financial pages.

But this month’s insider-trading arrest of senior managers at The Galleon Group, a Wall Street hedge fund, produced plenty of headlines and no doubt has your audience pondering just how trustworthy good old Joe down at Acme Advisers really is.

Meanwhile, with the markets on an upward trend, people who have been sitting on the sidelines will be getting ready to re-enter the fray. So, now’s a good time to organize a cautionary package that will tell readers about their rights and responsibilities in the investment arena, and where they can go for help.

While your financial district may not feature a $3.4 billion hedge fund, chances are there are plenty of financial planners and brokerage or insurance company salespeople nearby, selling your readers annuities, mutual funds and other products. While many are well-educated, well-intentioned and honorable, some are commission-driven, ill-informed, or just prone to making pitches that are more in their interest than the clients. It’s worth knowing how to check them out and how your audience can complain if they suspect fraud.

Like some other industries, the financial advice realm is governed by a labyrinth of state, federal and industry rules.

Understand that most of the government regulation concerns the orderly sale of securities – not how well the product or the advice matches a consumer’s age, aims and fiscal scenario. So people who toss around terms like “Series 7 license” aren’t necessarily better money managers than you or me, they’ve just passed a test showing they know the rules of trading in U.S. financial markets. It’s kind of like letting someone who passed Anatomy 101 remove your appendix, but most audiences don’t quite realize that.

Some watchdogs are trying to change that, but the going is slow.

The North American Securities Administrators Association is your starting point. The coalition of state regulatory bodies can point you to the regulators and resources in your state; NASAA’s news and information channel highlights current issues, including proposed changes to state investor protetction rules - a worthy starting point for your story – as well as to federal law.

Your state regulator can tell you where disciplinary notices are posted, and how to investigate the credentials of various categories of advisers.

This recent Wall Street Journal article outlines how the Financial Industry Regulatory Authority’s BrokerCheck database can help consumers – and reporters – spot financial advisers with troubled pasts. FINRA is a non-governmental body that acts as a regulator for the brokerage industry.

The Securities and Exchange Commission and its ancillary site, Investor.gov also offer primers that help novices decipher the industry lingo. Annuities, a common investment product, are sold by insurance companies, so you’ll want to check the National Association of Insurance Commissioners for pointers to your state regulators.