New Jersey Financial Advisor Pleads Guilty To Theft of Almost $900,000 From Client
Brian Murphy of Hainesport, NJ, recently pled guilty in Burlington County Superior Court to the misapplication of entrusted funds and failure to pay state income taxes. He will be sentenced to seven years in prison.
Murphy operated Murphy Financial Advisors in Moorestown, NJ.
In 2011, a client began to entrust Murphy with investment funds. The client ultimately forwarded him approximately $890,000. Murphy told the client he would be investing the client’s funds in mutual funds. Instead, Murphy used the money for private school tuition, country club dues, automobile purchases and attorney fees.
Murphy hid his actions from the client by creating phony account statements purporting to show the client’s investment portfolio. He even went so far as to fabricate a website for the client to review.
Murphy’s scheme unraveled when the client, apparently unhappy with the information Murphy was providing, directly contacted the investment firm which supposedly held his account. However, when the client reached that firm he was advised that the firm had no record of him being an account holder. The client then contacted the Burlington County prosecutor’s office.
At some point, according to media reports, Murphy went to the client’s home and asked him to sign a promissory note indicating that the client had loaned Murphy the money.
Luckily for this client, he wised up after receiving phony and intermittent information on his investments from Murphy. Unfortunately, it took the client five or six years to realize he was being victimized. While Murphy is, as part of his guilty plea, obligated to make restitution to the client, news reports are unclear as to whether Murphy has the funds to do that.
Accounting and securities fraud are a common thread in bull and bear markets alike. Investment advisors can create false account statements for a wide array of reasons. This can include hiding losses from investors, keeping investors oblivious as to what investments are actually being made on their behalf, or hiding any potential conflicts of interest. Wealthy investors who place assets with investment advisors in private placement deals are especially vulnerable. These are investments that are generally open only to accredited investors looking to embrace small companies or enterprises looking to grow. Private placements generally have an offering sheet which discloses how the company is structured, rate of anticipated return, and anticipated fees. Obtaining a securities lawyer to parse through these financial documents is absolutely essential. The problem is most investors don’t retain counsel and miss red flags for securities fraud.
A recent case in Seattle is another example of red flags that investors missed. Charges of financial fraud were brought against Mark Spangler, former chairmen of the National Association of Personal Financial Advisors, who was charged with fraudulently investing client assets into investments that he had a stake in and falsifying documents to hide this from his investors. Estimated losses were $46 million out of $106 million invested. The red flags that federal investigators noted were failure on the part of the investors to comprehend where their assets were held and whether the project or their investment advisor retained the services of an auditor.
These cases highlight the need for clients who feel their accounts are being mishandled mismanaged, or possibly fraudulently invested, to seek out the counsel of experienced securities attorneys. Lubiner, Schmidt & Palumbo represents brokerage firms, individual brokers and customers in securities related legal matters. Contact Lubiner, Schmidt & Palumbo for a free consultation if you have legal questions relating to the securities industry.