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How an Investor Can Protect Against Fraud and Institutional Failure

by Sheryl Vieira
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LeeThacker_Caldwell_Trust_CompanySince the frauds like Madoff and Nadel and the institutional failures like Lehman Brothers and  Washington Mutual came to light; there has been a legitimate concern about the safety of assets.

 

Madoff and Nadel were true frauds—they never actually held the assets their investors thought they owned.  What caused all those financial institutions like Washington Mutual to fail? It was bad loans. And, why did so many brokerage houses fail or have to be taken over? It was over-leveraging. Lehman Brothers, for example, had thirty more times debt than they had capital and most of it was invested in mortgage loans. When the real estate market went sour, they were forced into bankruptcy.

 

Do you have concerns about the safety of your assets?  If so, here are some considerations.

First and foremost, verify that the assets under management of any financial institution you deal with are in the custody of the Depository Trust Company which holds trillions of dollars’ worth  of securities in custody, including corporate stocks and bonds, municipal bonds and money market instruments. In 2013, it held $42.9 trillion in custody and processed $1.6 quadrillion (that is $1,600,000,000,000,000) in securities transactions. The DTC is registered with the SEC, is a member of the Federal Reserve System, and is owned by many companies in the financial industry with the NYSE being one of its largest shareholders.

 

Caldwell Trust Company is a direct member of the DTC. Under our charter with the State of Florida, we have trust powers only—we cannot make loans.  And, under state and federal law, trust companies cannot leverage.  Further, we are examined by the State of Florida Department of Banking and Finance approximately every eighteen months. Their report is very thorough and our Board of Directors directly review and sign off on it. In addition, we engage one of the largest independent auditing firms in Southwest Florida who do an independent, unqualified audit annually that is reported to our Board. Lastly, we employ an independent auditor who periodically examines client accounts and makes reports directly to the audit committee of our Board.

 

Working with an independent trust company is the safest place to custody client assets.

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