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n e w h a v e n b i z . c o m | J u l y 2 0 2 2 | n e w h a v e n B I Z 25 F O C U S : A c c o u n t i n g By Michelle Tuccitto Sullo I nvesting in a company can be a worthwhile way to make your money grow, but that's only if your funds are actually being invested. Recently, the region has had multiple high-pro- file cases in which people invested high dollar figures, only to discover later that individuals had diverted funds for personal gain. Area investors' money has disappeared as fraudsters have treated themselves to fancy vacations, high-end vehicles and gambling sprees. In May, Greenwich resident Samuel Klein, 66, was sentenced in U.S. District Court to three years in prison and ordered to pay restitution for defrauding investors of nearly $1.5 million. Assistant U.S. Attorney Jennifer Laraia portrayed Klein in court documents as a "predator" who caused "devastating" and "life-altering" harm to his victim investors, including one who is unable to enjoy retire- ment due to financial losses. She said Klein prioritized his lavish lifestyle, includ- ing accommodations at a resort in Jackson, Wyoming, and "staggering" credit card expenditures. He por- trayed himself as a wealthy and successful business- man, entertaining people at his Greenwich estate. Investors' funds went toward Klein's personal property taxes, credit cards, payments for a Ferrari and a pool company, according to the government. Klein's defense attorney, Stanley A. Twardy Jr. of Day Pitney, wrote in court documents that Klein "is ashamed of his actions," and has agreed to make full restitution to investors. According to Twardy, Klein also used some of IMAGE | ADOBESTOCK.COM the funds to support projects or ventures he hoped would generate substantial returns for his investors and himself. In yet another case, in February, Brian Hughes, 57, of Madison, pleaded guilty in U.S. District Court in New Haven to offenses such as wire fraud and illegal monetary transactions. Hughes awaits sentencing and has agreed to pay nearly $3 million in restitution, money owed to investors and the Internal Revenue Service. Hughes in 2015 founded the Branford-based Handcraed Brands LLC, for the purpose of raising money to purchase Salute Ameri- can Vodka. Dozens invested, and while Handcraed Brands did purchase Salute in June 2016 for $450,000, federal prosecutors say Hughes used investment money for his personal taxes and credit card expenses. In December, the CEO of Hamden-based Vanessa Biotech, Norman Gray, 66, of Hamden, was charged with one count of wire fraud for allegedly stealing more than $1.4 million from an investor. Federal prosecutors claim Gray diverted money for general company operating expenses and for his own personal use, including to buy a $50,000 luxury SUV. Gray has entered a "not guilty" plea, and his case is pending in U.S. District Court in New York. "History is littered with investment scams," said Joseph DeCusati, a partner with accounting firm Marcum LLP. "Many make the news, but a signif- icant percentage do not. ere is a lot of fraud in society today." Frank Rudewicz, principal with accounting firm ClionLarsonAllen LLP, says there is a link between the economy and these types of cases. "Historically, when the economy turns [for the worse], there are spikes in all kinds of fraud, including investment fraud," Rudewicz said. e U.S. Financial Industry Regulatory Authority (FINRA) reports it received 5,472 investor complaints in 2020, with 808 new disciplinary actions filed, and $57 million in fines issued. Avoiding loss How can investors protect themselves and make sure their money is actually going toward their investment? First, be aware of red flags. e Federal Bureau of Investigation advises people on its website to be wary of warning signs, such as if an offer "sounds too good to be true." "ere is no such thing as a guaranteed return," DeCusati said. Kathleen Titsworth, a spokes- person for the Connecticut Department of Banking, said general warning signs include promises of quick profits, claims that an investment is risk-free, refusal to send written information and high pres- sure tactics. Fighting Fraud Making sure your money goes toward your investments Continued on page 26 PHOTO | CONTRIBUTED Joseph DeCusati PHOTO | CONTRIBUTED Frank Rudewicz FINRA regulatory actions FINRA is responsible for regulating every broker and brokerage firm doing business with the U.S. public. Here's a breakdwon of regulatory actions the agency took in 2020. Investor complaints received ..................................... 5,472 New disciplinary actions filed ....................................... 808 Fines (in millions) ..................................................... $57.00 Restitution (in millions) ............................................ $25.20 Firms expelled .................................................................. 2 Firms suspended .............................................................. 2 Individuals barred ......................................................... 246 Individuals suspended .................................................. 375 Source: FINRA

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