Wealthy individuals have access to extra-ordinary safeguards
against fraud.
While it is true that affluent individuals have access to private bankers and investment advisers, they are still human and are just as susceptible to fraud and scams as people who don’t have the assistance of high-priced advisers. The proof is in the headlines. How many times in the past five years has the Wall Street Journal run a front-page story about an individual who scammed dozens of well-known, sophisticated people out of millions of dollars? How many times in the past five years has the attorney general for the state of New York filed charges against companies and individuals that conspired against their clients and stockholders?
The questions each individual should ask are: Am I getting the right advice? Can I trust my broker? Can I trust the investment banker who gives my broker advice to be unbiased? Can I trust the mutual fund company that is handling my stocks and investments? Can I trust the accounting firm that’s auditing these individuals or companies to be complete?
Private banks will protect their clients from losses if they are victims of forgery, identity theft, or embezzlement.
Not true. All of us operate under the guidelines of Article 3, Section 406 of the Uniform Commercial Code. While this code is not a federal law, it is a law that is uniform throughout the 50 states. In essence, it states: If a bank acts with ordinary care, and the customer is negligent, and the negligence leads to a forgery, the bank is not liable. Whether you maintain a personal checking account, a DBA, or a major corporate account, you are governed by this law.
Under the revision of this code many laws that protect the bank are now on the books. For example, you have 30 days from the date the statement was sent to reconcile your bank statement and notify the bank of any discrepancies. If you fail to notify the bank in 30 days you are liable for the loss. Second, you are responsible for the acts of your responsible employees. If a bookkeeper, accountant, treasurer, CFO, or controller fraudulently alters or issues unauthorized checks, the liability is yours, not the banks. Third, if you have a bookkeeper who writes, signs, and reconciles checks, you are liable for any losses that occurred due to a fraudulent act committed by this bookkeeper. Failure to segregate these duties leaves you liable.
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