New fund helps get some cash back for fraud victims

Victims of investment fraud in Ohio are now able to recoup some of the money they lost thanks to a new state recovery fund.

The Ohio Department of Commerce's Division of Securities announced the launch of the Ohio Investor Recovery Fund on Wednesday, making Ohio the fifth state to set aside funds for victims of securities-related crimes. Indiana, Maine, Montana and Vermont have similar funds.

"They term it 'White collar crime,' which is a term I detest, because it dresses it up. It is no doubt crime, and people are badly hurt," Assistant Stark County Prosecutor Kristin Mlinar said. "The victims of these crimes are often overlooked."

Securities fraud victims who are eligible for assistance through the fund can get back 25% of the money they lost, capped at $25,000. Joint account holders' losses are tallied based on the number of primary account holders — using a married couple as an example, each spouse can claim assistance for up to half of the full monetary loss in a joint account.

To be eligible for financial assistance from the fund, a victim must be an Ohio resident and identified in a final order from the division following an investigation, or in a criminal or civil case initiated by the Division of Securities in which a final court order has been given.

"We know that courthouse justice — while it feels good — doesn't always provide the monetary relief that these families need," Commissioner of the Division Andrea Seidt said.

Only victims identified in final orders issued after Sept. 30, 2021, are eligible for relief from the fund.

Victims must not have already received the full amount of their monetary loss via a restitution order. Victims must also not have taken part in, or profited from, the violations of securities laws addressed in the order.

If the division has already awarded a victim restitution assistance but the restitution order has been overturned in a court of appeals, then the victim must forfeit the financial assistance they were awarded.

Victims of securities fraud can apply for financial assistance from the fund online at the Ohio Department of Commerce webpage.

Where does the fund

money come from?

The recovery fund was established as a part of the state's 2022-2023 budget bill Gov. Mike DeWine signed last July.

The Division of Securities added $2.5 million to the fund earlier this year, and will transfer another $2.5 million from its excess operating revenue and cash reserves into the fund every fiscal year "as needed," Seidt said. The cash reserves are based on registration charges for Ohio securities and fees paid to the division by licensees, so no taxpayer money is used in the fund.

If the fund falls to near or below $250,000, payments to victims will be suspended for the rest of that month and the following two months. At the end of the suspension period, the division will pay victims at a prorated amount based on how much money is currently left in the fund.

To receive financial aid from the fund, eligible victims must file a completed application with the division within 180 days of the final order for restitution, unless the division has granted an extension. Eligible victims must also respond within 60 days to requests from the division to provide additional documentation or information to process claims.

What does investment

fraud look like?

Securities fraud schemes take many forms, Seidt said.

The most common form of fraud her office encounters are private placement and promissory note scams, in which fraud perpetrators take investments for often-fake companies that aren't registered with the Department of Commerce and promise returns on investments that will never come.

Seidt said potential investors should call and check investment offerings with the Department of Commerce before making financial investment decisions.

The division also fielded a significant number of fraud cases involving cryptocurrency last year, thanks to the unprecedented wave of new, mostly young people investing. Oftentimes crypto fraud occurs overseas and there's no possibility of recovery, so the Ohio Investor Recovery Fund might be the only avenue for fraud victims in those cases to get their money back, Seidt said.

Investment fraud schemes committed by professional financial advisors and firms are particularly insidious, Seidt said, because there's often a relationship built on trust that perpetrators take advantage of.

"That's probably one of the more rare forms, but obviously very devastating when it happens because it's a crime of trust," Seidt said. "It's people dealing with somebody who's licensed, competent, and someone you think that you can hand your money over to."

Such is the case with Hattie Parsons, an 82-year-old woman from Mansfield, who lost $45,000 after a financial advisor she trusted asked her to invest in a business of his before taking her money and that of 50 or so others and running, she said.

"50,000 was every dime I had in savings," Parsons said. "I trusted him so much I offered him the other $5,000, and he said 'No, this was enough.'"

Parsons has been unable to recover all of her money because several of the perpetrators who defrauded her live outside of the state, making it more difficult to hold them legally accountable.

Through the recovery fund she was awarded 25% of her monetary loss, which amounts to $11,250.

"I was told today that I only get $11,000 of the money I lost," Parsons said. "That hardly seems fair."

Nolan Simmons is a fellow in the E.W. Scripps School of Journalism's Statehouse News Bureau.