When some advisers go bad

Responding to a newspaper ad, Matt Van Egdom of Camarillo, Calif., thought he’d found a legitimate financial adviser.

Vincent Ferro, who ran Capital Advisory Group in Thousand Oaks, Calif., made some money for Mr. Van Egdom. That’s probably why the client trusted him when he pitched callable certificates of deposit that purportedly paid 10.52% interest.

But Mr. Van Egdom, a 77-year-old retired contractor, says that when he tried to pull out his $40,000 from the CD, Mr. Ferro stalled. As it turned out, Mr. Van Egdom and about 85 other elderly people had put $10 million into an illiquid CD that wouldn’t mature until around 2027.

“He suckered me in on this one,” says Mr. Van Egdom, who sent a complaint letter to the Securities and Exchange Commission. “It’s partly my fault … but I don’t think it should happen to old people.”

Of all the investor complaints filed with the SEC, outright rip-offs by registered investment advisers are not the norm, but they are the most ruinous to the industry’s image.

“The majority of the industry is legitimate, but the little piece of it that isn’t does a tremendous amount of damage,” says Melanie Senter Lubin, Maryland’s securities commissioner.

From 1996 to 2000, 44 complaints involving thefts of funds or document forgeries were filed against advisers. Thefts and forgeries ranked 14th in frequency for the five years examined by InvestmentNews. In the first quarter of 2001, though, five complaints filed involved theft of funds. It was the fifth-most-frequent charge against RIAs in that time.

California regulators are examining allegations of grand theft, forgery and securities fraud against Mr. Ferro, who allegedly received commissions of 15% to 45% on the investments.

The adviser, who could not be reached for comment, was the subject of six complaints during 1999 and 2000 – one of the highest amounts for a small firm. Most of the complaints requested an investigation.

Susan Wyderko, director of the SEC’s office of investor education and assistance, says investors have to be on their guard.

“We advise people to first check out the individual as well as you can, ask for recommendations from friends, ask about the investment track record, ask whether there are any disciplinary actions against that individual, and check,” she says.

But Steven Siskin, a Raymond James Financial Services Inc. adviser who unsuccessfully tried to help people such as Mr. Van Egdom get their money out of the CDs, knows how trusting the public can be.

“I’ll be honest with you. I have clients that have spent millions of dollars with me, and I have never physically met them,” he says.