With graduation season upon us we are lauding those students who have excelled in academic achievement, or at least did just enough to earn their degrees. It is all too easy for a fraudster to concoct false degrees, titles and awards to lure in unwary investors. With two recent fraud cases, the Securities and Exchange Commission issued a new Investor Alert: Beware of False or Exaggerated Credentials.
“Do not trust someone with your investment money just because he or she claims to have impressive credentials or experience, or manages to create a ‘buzz of success.’”
The SEC Enforcement Division announced two fraud cases against investment advisers who made false claims about their experience and industry accolades.
The SEC charged Todd M. Schoenberger of Lewes, Delaware, with misrepresenting that he had a college degree from the University of Maryland. Also for defrauding investors. He was raising a fund and also raising money for his fund management company: LandColt Capital LP. Schoenberger told prospective investors that LandColt would repay the notes through fees earned from managing the fund. Schoenberger never actually launched the fund, never had the commitments of capital to the fund that he claimed, and never paid investors in the management company the returns he promised. The SEC made a show of him because he had been a guest commentator on financial television shows.
I found the fake degree to be the least interesting part. The double-fraud is far more interesting. He was committing fraud in raising the fund and in raising capital for the management company at the same time.
An SEC investigation found that Michael G. Thomas of Oil City, Penn, claimed that he was named a “Top 25 Rising Business Star” by Fortune Magazine. He used that false badge in general solicitation for his private fund. No such distinction actually exists at Fortune Magazine. As you might expect, Thomas also greatly exaggerated his own past investment performance and inflated the fund’s projected performance. He claimed to have turned $600 in to $6 million, when he actually started with more than $600 and turned it into less.
I think the older Hicks case is a better example of false credentials. The SEC alleges that Hicks falsely represented in the offering memorandum for his Locust Offshore Management hedge fund that he had undergraduate and graduate degrees at Harvard University and that the fund’s quantitative strategies were based on mathematical models that Hicks developed while at Harvard earning those degrees. However, that is far form the truth. Hicks only attended Harvard for three semesters, was twice required to withdraw for failing to perform academically, and never graduated. Hicks only took one mathematics course during his time at Harvard, receiving a D- for a grade.
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What is really unfortunate is that most schools in the United States use National Student Clearinghouse, which has become the industry standard outsourcer for many colleges and universities, which will not allow anyone to verify a degree for “due diligence” or investment purposes. Even if you have signed permission from the student.