In Focus
December 12, 2003
 
candals"! That's the term the Wall Street Journal and other financial publications use daily! Fraud and investor abuse seem to be standard operating procedure at many large financial institutions, and on a grand scale.
For a change, this In Focus looks at the fraud perpetrated by just a single stockbroker (though employed by a large brokerage firm) against just 16 customers. The broker is Lawrence Eng Hock Chia, and the firm is Salomon Smith Barney. The facts are taken directly from the New York Stock Exchange's decision to permanently bar Mr. Chia from the securities industry.
Between 1994 and 2002, Chia sold fictitious "bonds" to 16 of his customers at Salomon Smith Barney. He claimed the bonds were being issued as part of a private placement affiliated with his firm (the firm stated that it had no knowledge of the issue). To defraud his customers, Chia created official looking confirmations. He placed the customers' Salomon Smith Barney account numbers on those confirmations. When the bonds matured, he would roll them over into new bonds.
Chia managed to pay "interest" to his customers by wiring that interest from an outside bank account, until the summer of 2002. When he failed to pay interest, customers complained to the firm. Chia then disappeared from the firm. Chia never repaid the 16 customers, who lost about $1.7 million.
Investor abuse can occur at all levels. Remember that.
— James J. Eccleston
FinancialCounsel.com
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