Hazards of being buddies with your stock broker

Despite the flurry of high-profile financial scams, investors are still willing to believe what they want to believe. NYT has a cautionary tale about how a Wells Fargo financial adviser named Philip Horn made the rounds at Tarzama's Braemar Country Club in search of potential clients. "I always thought, 'This is a great guy and a straight shooter,' " Barry Zelner, one of several country club members who invested with Horn, told the Times. Except that Horn was defrauding more than a dozen clients, along with Wells Fargo.

For more than two years, Mr. Horn systematically executed and canceled trades in clients' portfolios, pocketing the profits. To avoid detection, he limited his paper trail and made it appear that the trades originated in his own account, according to court documents. "It's simply unbelievable to me that this kind of fraud could happen for so long without Wells Fargo doing anything about it," Mr. Zelner said. After meeting Mr. Horn on the golf course, Derek Brown invested more than $10 million with him in 2006, assured by the Wells Fargo name on his business card. "This wasn't just Schlepper & Schlepper," Mr. Brown, a retired pharmaceutical executive, said.

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Mr. Horn, who worked in a team of brokers, seemed to land clients without an aggressive approach. He wooed clients slowly, often over many years. Between golf holes, he would casually mention winning trades, almost as an aside. He nurtured friendships with clients. Norman Strang, an 80-year-old retired aerospace executive, said his wife regularly cooked dinner for Mr. Horn at the couple's home in Pacific Palisades, Calif. "Here he was being this friendly guy, and yet he stole several thousands of dollars from our account." Mr. Horn went to the weddings of both Mr. Brown's children and planned to join him on a charitable trip to Israel and Morocco in the fall of 2011.

Brokers can rip you off in all sorts of ways, of course. But friendships, even professional ones, can cast off normal due diligence. And when clients know each other through the same club, church or business, the scrutiny is sometimes non-existent. The assumption is that somebody else has checked things out. But no one has.