Save time, money, and painful disappointments: Investors do not charge due diligence fees
Beware Unregistered Financial Professionals: Protect Your Investments and Business
You’re a small business owner seeking capital or an everyday investor looking for high returns. A self-proclaimed “investment banker” promises to secure funding if you pay an upfront due diligence fee. Or a supposed “advisor” guarantees outsized returns for a membership fee. How do you know if these people are legitimate?
In this article, we’ll explain how to identify true broker-dealers, investment bankers, and investment advisers, and why their registration status matters. We’ll also highlight the dangers of dealing with unregistered individuals, share real-life horror stories of scams, list red flags to watch for, and provide a practical guide to verify if a financial professional is properly licensed. The goal is to help Main Street and Middle Market retail and high net worth investors and business owners avoid fraud and misconduct in the financial world.
What’s in a Title? Broker-Dealers, Investment Bankers, and Advisers
Broker-Dealer: A broker-dealer is a person or firm licensed to sell securities (stocks, bonds, etc.) to investors. Brokers execute trades or help companies raise money by selling securities, usually earning commissions per transaction. If someone is connecting investors with investment opportunities or facilitating the purchase/sale of stocks, they’re likely acting as a broker-dealer. In fact, U.S. law generally requires anyone who finds investors and earns transaction-based fees to register as a broker-dealer, regardless of the size of the deal. Legitimate investment bankers (who help businesses raise capital or do mergers) typically operate as registered broker-dealers as well.
Investment Adviser: An investment adviser provides advice about securities. Unlike brokers, advisers don’t sell you specific securities for commission; instead, they guide your investment decisions or handle your money according to agreed strategies. Investment advisers (and their firms) must register with either the SEC or state securities regulators, depending on their size. They often owe clients a fiduciary duty (to act in your best interest), and they charge fees for advice rather than per trade.
Investment Banker: The term “investment banker” often refers to a corporate finance professional who helps companies raise funds (selling stock or bonds) or broker deals. In practice, investment banking activities overlap with broker-dealer activities – underwriting a stock offering or finding investors for a private placement requires broker-dealer registration. If someone calls themselves an “investment banker” or “finder” and seeks a success fee for raising capital, they must be properly registered as a broker in order to legally perform that service. Always be cautious if an intermediary is only a “consultant” with no securities licenses; they might be skirting the law.
Why Registration Matters: The Dangers of Unregistered Deal-Makers
Working with unregistered individuals poses serious risks. Federal and state laws require registration for brokers and advisers to protect investors by ensuring baseline qualifications, oversight, and accountability. If someone is operating without the proper license, they are bypassing those investor protections – and there’s often a reason. Here are the key dangers of engaging unregistered professionals:
No Regulatory Oversight: Registered brokers and advisers are subject to background checks, examinations, and rules. Unregistered operators have no regulator watching over them, making it easier to commit fraud or mismanage your money. In fact, a vast amount of investment fraud in the U.S. is committed by unlicensed, unregistered persons. They aren’t accountable to industry regulators like FINRA or the SEC, so bad actors can hide past misconduct or financial problems more easily.
Upfront Fee Schemes: A common scam by unregistered “consultants” or “bankers” is to charge hefty upfront fees, often labeled as “due diligence,” “retainer,” or “consulting” fees, and then fail to deliver real results. Legitimate, registered firms typically charge success-based fees (e.g. a commission on funds raised) rather than large upfront payments for merely attempting to raise capital. If an unregistered person demands a big fee before any service is rendered, it’s a major red flag. As we’ll see in the true stories below, fraudsters often disguise upfront fees or markups and siphon off money even if no successful outcome occurs.
Illegal and Unenforceable Deals: When an unregistered person sells you an investment or helps your company find investors, the transaction itself may be unlawful. You could be unwittingly participating in an illegal securities offering. If things go wrong, you may have limited legal recourse. In some cases, companies that used unregistered “finders” have had deals unwound or have been held liable for aiding and abetting violations. You definitely lose the protections of securities laws when the people handling your money aren’t playing by the rules.
No Guarantees of Professionalism: People evading registration often do so because they cannot qualify or have disciplinary histories. They might have been barred from the industry for past misconduct, and now operate in the shadows. By contrast, if someone is registered, you can at least check their record for any misconduct. Remember: registration is not a seal of approval or a guarantee of honesty, but it is the bare minimum required to trust someone in this business. (Even the SEC cautions that while registration provides important information and investor safeguards, “registration does not guarantee a safe investment" or the quality of a professional.)
In short, if a person is performing activities of a broker or adviser without proper registration, it’s a glaring warning sign. The next section gives you real case examples of how devastating the consequences can be. :(
True Stories of Unregistered Fraudsters – and Their Victims
Real-life cases drive home the importance of working only with registered professionals. Below are several true stories (national headlines and lesser-known scams alike) of individuals and companies caught in unlawful practices involving unregistered brokers or advisors. These cautionary tales show common patterns – from advance fee scams to Ponzi schemes – so you can recognize and avoid them.
The “No Upfront Fee” Pre-IPO Hustle (2023)
In December 2023, the SEC charged a group of five unregistered brokers and their companies for a massive pre-IPO investment scam. These fraudsters raised over $525 million from more than 4,000 investors by selling shares of purported “pre-IPO” companies – private companies supposedly about to go public. Their pitch was enticing: investors were told there were no upfront fees and that the brokers would only profit after the companies went public. In reality, every investor was charged exorbitant hidden fees built into the share prices, sometimes markups as high as 150%, which netted the schemers $88 million in illicit profit.
As one SEC official described, the defendants “sold unregistered securities to investors based on false promises of no upfront fees” while secretly siphoning off tens of millions for themselves. To make matters worse, the ringleader of the scheme had a checkered past – he was actually barred from the brokerage industry due to a prior insider trading case, a fact the group went to great lengths to conceal. This case is a textbook example of a red flag: unregistered agents, secret fees, and leaders with hidden disciplinary histories. Thousands of victims ended up with investments in companies that may never go public, while the brokers enriched themselves upfront.
Ponzi Salespeople and the $1.2 Billion Scheme (Woodbridge)
One of the largest investment frauds in recent memory, the Woodbridge Group Ponzi scheme, also highlights the role of unregistered sellers. Woodbridge was a Florida-based operation that collapsed into bankruptcy in 2017, revealed to be a $1.2 billion Ponzi scheme targeting retail investors. In 2018, the SEC charged five top sales agents of Woodbridge who collectively sold over $243 million of Woodbridge’s unregistered securities to more than 1,600 investors. These individuals were not licensed broker-dealers, yet they promoted Woodbridge investments as “safe and secure” – hosting seminars, running radio ads, even classes at a university – and raked in millions in commissions from their sales. One was a formerly barred broker who brazenly violated his ban to keep peddling the scheme.
When Woodbridge imploded, investors stopped receiving the “interest” payments they were promised and many lost their principal. The unregistered brokers in this case faced SEC enforcement, asset bans, and penalties. The SEC emphasized that broker registration rules are “vital protections for retail investors” – without them, these scammers were able to “pocket millions of dollars in unlawful commissions” while pushing a fraudulent investment.
This high-profile case shows that even nationally marketed investments can be sold by unregistered, unqualified individuals, leaving devastation in their wake. No matter how “safe” an opportunity sounds, always check who is selling it to you.
Faith-Based Affinity Fraud by a Fake Adviser (Texas, 2020)
Not all scammers are big Wall Street types; some operate in local communities under the guise of trust. Consider the case of Clifton “Clif” Sneed Jr., a Texas man who posed as an investment adviser and “wealth planner” targeting church members. Sneed promised devout clients that he’d help them achieve financial independence and guaranteed outsized returns if they joined his program. To join, people had to pay a hefty upfront membership fee to his firm (a one-man shop called “The Trade Group”), which Sneed claimed would unlock exclusive investment advice and even “private banking” services. In reality, it was all a scam.
Sneed had no legitimate registration as an investment adviser, and behind the pious sales pitch he hid a long criminal and regulatory history, including prior fraud convictions and cease-and-desist orders in multiple states. He also lied about having financial certifications and didn’t disclose he was being paid kickbacks by companies he recommended.
According to the SEC, Sneed’s victims (many of them fellow churchgoers) lost at least $1.1 million, while he pocketed over $400,000 in fees and secret commissions.
This true story is a classic affinity fraud: the scammer leveraged a community bond (religion) to gain trust, promised guaranteed results (a huge red flag), charged upfront fees, and operated entirely unregistered. Investors later learned the hard way that Sneed’s registration status might have tipped them off – he was a repeat offender who could not lawfully act as a financial advisor.
40% Commissions for Worthless Stock (Florida, 2017–2019)
Small and mid-sized businesses seeking capital can become victims too. Trends Investments, Inc. was a Florida “investment” firm that claimed to help companies raise money, but what it really did was unload penny stocks on unsuspecting retail investors. From 2017 to 2019, Trends (run by president Clinton Greyling) sold about $1.9 million worth of shares in thinly traded, fledgling companies by touting them as the next big thing – some were supposedly entering hot markets like cannabis or blockchain tech. Greyling hired a salesman who was a former registered broker (he’d given up his license) to cold-call investors nationwide. This individual falsely presented himself as a licensed broker and wealth manager while hyping the stocks as promising opportunities.
Behind the scenes, Greyling arranged to pay this unregistered salesman a whopping 40% commission on every dollar of stock sold, an undisclosed cut that totaled over $800,000 in commissions on the $1.9M raised. That enormous kickback gave the salesman every incentive to mislead investors. In the end, the shares sold were virtually worthless; the promised business successes never materialized, and investors couldn’t resell their stock or recoup losses.
In 2024, Greyling pleaded guilty to federal charges for aiding and abetting an unregistered broker’s scheme. This lesser-known case underscores several red flags: an advisor pushing “can’t-miss” new industries, a salesperson operating without a current license, extremely high secret commissions, and pressure to buy microcap stocks that ended up being impossible to trade.
Each of these stories share a common thread: unregistered individuals exploiting investors or businesses. Whether it’s through false promises of no fees, affinity-based trust, or undisclosed commissions, the lack of proper registration enabled these frauds to flourish. So how can you spot similar dangers before becoming a victim? The next section outlines key warning signs.
Red Flags: How to Spot Unlawful or Shady Practices
If you’re approached by someone offering investment services or funding for your business, stay vigilant. Below are some major red flags that could indicate the person is unregistered or that an investment scheme is illegal. If you spot several of these signs, think twice (and verify the person’s credentials as described later) before handing over any money:
❌ Unregistered Seller: The person isn’t listed on FINRA BrokerCheck or the SEC’s adviser database. As simple as it sounds, not being able to find a supposed professional in the registration databases is a huge warning. Unregistered individuals carry out many securities frauds targeting retail investors, so always verify their licensing. If they claim “I don’t need to be registered for this deal,” be extremely wary, that’s often false and a sign of unlawful activity.
❌ Upfront Fees or “Advance” Payments: Be alarmed if someone demands large upfront fees for arranging financing or providing advice. Scammers often use fancy terms like “due diligence fee,” “retainer,” or “consulting fee” to legitimize an advance payment. In reality, advance fee fraud is common – once you pay, the promised funding or deal never materializes. Legitimate broker-dealers might charge a modest retainer or expense reimbursement, but most of their compensation should be success-based (e.g. a percentage of funds raised or transactions closed, not all upfront). An upfront fee, especially if the person is unlicensed, could be a ploy to take your money and run.
❌ Guaranteed Results or No-Risk Deals: “I guarantee you’ll get financing” or “This investment can’t fail” – any such promise of high returns with little/no risk is a classic red flag. No honest professional will guarantee success or specific returns. Successful funding or profits are never guaranteed, even with the most reputable advisors. Fraudsters pitch “once-in-a-lifetime” opportunities and sure things to prey on hopes and fears. Remember: if it sounds too good to be true, it probably is.
❌ Pressure and Urgency: Beware of aggressive sales tactics. Unregistered promoters often create false urgency, “You must act now, or you’ll miss out” – to stop you from doing due diligence. High-pressure phone calls, incessant emails, or pushy seminar pitches are signs of a potential scam. A legitimate broker or adviser will give you time and information to make an informed decision; a scammer wants you to hurry and hand over money before you discover the truth.
❌ No Documentation or Shady Paperwork: If an investment or deal lacks proper written information, that’s a problem. Legit private offerings have offering documents (PPMs, term sheets, etc.). Refusal to provide anything in writing or only giving you sloppy, typo-riddled documents is a red flag. Fraudulent schemes often avoid leaving a paper trail. Also be cautious if contracts or fee agreements are overly complex, non-standard, or ask you to keep things secret – it might be structured to dodge regulators or confuse you.
❌ Unsolicited Offers and Big Claims: Out-of-the-blue contacts (cold calls, LinkedIn messages, social media ads) pitching investments or funding are suspect, especially if they tout trending industries (crypto! cannabis! AI!) and promise you access normally “reserved for the elite.” Scammers frequently use boiler-room cold calls and social media ads to cast a wide net. Be extremely skeptical of unsolicited opportunities – ask yourself why this “great deal” is being offered to you, a stranger. It could be because legitimate investors have already passed on it.
❌ Secretive or Misrepresented Background: If the individual avoids questions about their qualifications or past, or gets oddly deflective when you inquire about their regulatory licenses, that’s a bad sign. Some fraudsters even impersonate real registered professionals or create fake credentials. Always verify identities. If a person has red flags in their background (e.g. prior fraud sanctions, bans), they may go to lengths to hide it. Don’t take anyone at face value – cross-check what they tell you.
Any one of these red flags is cause for concern. Multiple red flags are a flashing neon sign telling you to stay away and report the incident. But you don’t have to rely on gut feeling alone – there are concrete steps to verify someone’s legitimacy. Let’s go through how you can check registrations and background information.
Verify Before You Trust: A DIY Registration Check Guide
Fortunately, investors and business owners have free tools at their disposal to check whether a broker or adviser is properly registered and whether any disciplinary actions exist. Before engaging any financial professional or paying them money, take these steps:
Use FINRA BrokerCheck for Brokers/Dealers: FINRA’s BrokerCheck database is an easy online tool to look up individuals and firms in the brokerage industry. Simply go to BrokerCheck (brokercheck.finra.org) and enter the person’s name or firm name. If they are a registered broker or brokerage firm, their profile should appear, showing licenses, employment history, and any regulatory actions or customer complaints. If no record is found, that’s a strong indicator the person is not registered (or is using an alias). BrokerCheck is free and is a critical first stop – even the SEC urges investors to use it to quickly identify registration status.
Use the SEC’s IAPD for Investment Advisers: For investment advisers, including financial planners and wealth managers, the SEC provides the Investment Adviser Public Disclosure (IAPD) website. You can access it via adviserinfo.sec.gov (or the link on Investor.gov). Search the individual’s name or firm name to see if they are a registered investment adviser (RIA) or an investment adviser representative. The IAPD report will show their registration status (with the SEC or state), current employment, and any disclosures (like legal or regulatory problems). Just like with brokers, no results on IAPD = a big problem (unless they fall under some very narrow exemption, which is rare for anyone offering services to the general public). Always check both BrokerCheck and IAPD if the person claims to do both brokerage and advisory work.
Check State Registration if Needed: Sometimes smaller financial professionals are only registered at the state level (for example, a small investment adviser may register with one state’s securities regulator instead of the SEC). If your BrokerCheck/IAPD search comes up empty, contact your state securities regulator or visit their website. Every state has a securities division (often under the Secretary of State or Attorney General) and many have online license lookup tools. You can find your state regulator via the North American Securities Administrators Association (NASAA) website or by calling NASAA. They can tell you if a person is licensed in your state or if there are any state enforcement actions. Never assume someone is legitimate just because they say “I’m working under a state exemption” – verify it with the state regulator.
Look Up the Company or Offering on EDGAR: If you are investing in a company (especially if it’s represented as a stock or bond offering), check the SEC’s EDGAR database for any filings by that company. EDGAR is an online database of filings that companies make with the SEC. Public companies will have 10-Ks, 10-Qs, etc. Private companies raising money often file a Form D notice for certain private offerings. If a promoter claims “we’ve filed with the SEC” or “we’re about to go public,” you can confirm by searching EDGAR (via sec.gov’s EDGAR search) for the company name. Lack of any filings when you would expect to see some is a red flag. For instance, in a supposed pre-IPO investment, check EDGAR for an S-1 registration statement or other indication the company is legit. No EDGAR records doesn’t always mean it’s a fraud (small private companies might not be required to file), but any misrepresentation about SEC filings is a huge warning sign. Remember, EDGAR is free – use it to see if the story you’re being told checks out montague.law.
Review Background and News: Beyond official databases, do a basic internet search of the individual’s name and firm along with keywords like “fraud,” “SEC,” or “FINRA fine.” Many times, prior scams or charges will surface in news articles or press releases. The SEC’s website (sec.gov/news) and the Justice Department site (justice.gov) have searchable archives of enforcement actions. If your search returns an SEC press release about your guy being fined or a DOJ report of an indictment, you just saved yourself from a potential nightmare. Also check the SEC’s “PAUSE” list (Public Alert: Unregistered Soliciting Entities) which names entities and websites that falsely claim to be registered or are impersonating legitimate firms. If the firm contacting you is on that list, do not proceed.
Ask Questions and Listen for Honesty: Finally, don’t underestimate the power of directly asking a professional about their licenses and registrations. A legitimate broker or adviser will readily provide their CRD number, their firm’s name, and whom they are registered with (SEC, FINRA, state). They won’t dodge those questions. If someone tries to confuse you or says “registration isn’t necessary because of X,” that’s usually a bad sign. You can even ask for references or other clients (though be cautious – a scammer will just give you co-conspirators to sing their praises). The key is to not be shy about verifying credentials. It’s your money and your business on the line.
By following the steps above, you can quickly filter out many fraudulent operators. It’s worth the few minutes of research. As the old saying goes, “trust, but verify.” In finance, we’d modify that to: don’t trust until you verify.
The Bottom Line: Registration Is Just the Start
Regulation exists for a reason. If someone can’t clear the very low bar of registering with the proper authorities, they haven’t earned your trust – period. Whether you’re an investor looking at an opportunity or a business owner seeking capital, always insist on dealing with properly registered broker-dealers and investment advisers as a baseline requirement.
That said, remember that registration is not a guarantee of success or honesty. Even licensed professionals can make mistakes or even commit fraud (e.g., the infamous Ponzi schemer Bernie Madoff was a registered investment adviser and broker). What registration gives you is transparency and accountability: you can review a professional’s history and qualifications, and they have regulatory supervision that provides some level of protection. Think of registration like a minimum safety standard – a seatbelt in a car. It doesn’t ensure you’ll never crash, but you’d be foolish to drive without it.
In the world of finance, no legitimate deal is ever “risk-free,” and no outcome (funding, returns, etc.) is ever guaranteed. Be extremely skeptical of anyone who suggests otherwise, especially if they lack the credentials to back up their promises. If you encounter an unregistered individual offering broker or adviser services, it’s not only smart to walk away, it’s also wise to report them to authorities to protect others.
Main Street investors and entrepreneurs have the power to protect themselves by staying informed and doing a bit of homework on who they’re dealing with. We hope this guide has equipped you with knowledge about identifying financial professionals, recognizing red flags, and verifying registrations. By following these principles, you can significantly reduce the chance of falling victim to fraud. Always remember: in finance, an ounce of prevention is worth far more than a pound of cure. Stay alert, stay informed, and safeguard your hard-earned money.
Sources:
Nebraska Dept. of Banking & Finance – Broker-Dealer vs. Investment Adviserndbf.nebraska.gov (definitions of brokers and advisers)
Prince Lobel Tye LLP – Finders Legal?
princelobel.com (SEC requires finders to register as brokers, regardless of deal size)
SEC Office of Investor Education – “Unregistered Investment Professionals” are behind much of investment fraud
SEC Investor Alert – Pre-IPO scams often falsely claim “no upfront fees” while charging hidden markups
SEC Press Release 2023-245 – Five unregistered brokers charged in $525M pre-IPO scheme (false no-fee promise, $88M in hidden fees)
SEC Press Release 2018-157 – Unregistered Woodbridge sales agents sold $243M in securities, earning millions in unlawful commissions
SEC Press Release 2018-157 – (Woodbridge) Unregistered brokers touted “safe” investments, one violated an SEC bar
The DI Wire – SEC v. Clifton Sneed: unregistered adviser targeted church members with guaranteed returns, charged upfront fees
The DI Wire – SEC v. Sneed: Sneed hid his criminal past; clients lost $1.1M while he took $400k in fees/commissions
DOJ Press Release (D. Mass. Aug 30, 2024) – Clinton Greyling pled guilty: paid an unregistered broker a 40% secret commission (~$800k) to sell $1.9M of worthless stock.
FINRA/SEC Investor Education – Always check BrokerCheck and AdviserInfo to confirm if a person is registered.
Montague Law – Understanding Unregistered Securities: Registration provides disclosure but “does not guarantee a safe investment”
montague.law (investors must still be cautious).
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