In a case of compounded anguish, people who lost their life savings to George Fiorini's 10 Percent Income Plus scam are learning that if they want their money back, they have to open their wallets again and file lawsuits.

Fiorini

        Tristate investors sank more than $15 million into promissory notes sold by Mr. Fiorini and his former associate Stephen Ventre. Two years ago, the Ohio Division of Securities called it fraud. It stopped the Cincinnati men from selling more of the unregistered notes.

        But while more than 40 states and the U.S. Securities and Exchange Commission can invoke simple civil or administrative remedies to go after money fleeced from investors, Ohio can't — and isn't interested in joining the pack. So for note holders in Mr. Fiorini's IGW Trust and Mr. Ventre's Guardian Investments, the final leg of the enforcement trail becomes their responsibility.

        “It's ridiculous. It's flat-out ridiculous,” said Jeff Ward, whose parents are out $380,000 on Guardian notes brokered by Mr. Fiorini. “My parents are going to lose their home and their vehicle and my dad had to sell his boat just so they can have money for food and medicine. They can't afford a lawyer.”

        Neither the SEC nor any criminal agencies has brought fraud charges in the Fiorini-Guardian affair. The FBI and IRS did cite fraud in seizing eight vehicles from Mr. Fiorini, but the U.S. Attorney's Office hasn't followed up with criminal charges. That leaves the Ohio Securities Division as the only watchdog to come to investors' rescue.

        Ohio, however, has never passed a law allowing the division to pursue investor losses once a fraud is shut down.

        “The taxpayers pay us to represent state government,” said Joe Case, a spokesman for Ohio Attorney General Betty Montgomery, whose office represents the securities agency in court. “The statute does not allow the state to pursue a restitution on behalf of individuals.”

        Almost 200 people bought into Mr. Fiorini's 10 Percent Plus plan. It was billed as a low-risk investment with a guaranteed minimum yearly return of 10 percent. And it was strongly endorsed by Bob Braun, a beloved TV and radio personality who died in 2001.

        Some customers were initially skeptical of the fraud allegations against Mr. Fiorini. But when their monthly income checks stopped in late 2001 and they couldn't cash out of their accounts, apathy turned into panic.

        Now investors are stunned anew to find out that they have to spend more money to hire a lawyer to recover their lost savings.

        “You're talking to somebody below poverty level as far as income is concerned,” said Dee Neely, who bought a $12,000 Guardian note from Mr. Fiorini before moving from Waynesville to North Port, Fla. “I don't have the money to pay an attorney.”

        Nonetheless, about 10 investors already have sued Mr. Fiorini or Guardian. The latest was a class-action suit filed by lawyer William Singer of Cincinnati. To join, investors must fork over $1,000 apiece — up front.
       

Ruling hurt victims

        The state of Ohio did at one time throw its weight into collection efforts for swindled investors — in 1975. The Securities Division tried to do just that against a company called Buckeye Finance, but the Ohio Supreme Court wouldn't let it.

        In its attempt to obtain restitution, the state cited an Ohio statute affording “other relief as the facts warrant.” The Supreme Court said it was too vague. If the Ohio General Assembly intended the law to include restitution, the court ruled unanimously, it would have specified so.

        A former Ohio state representative, Dennis Eckart of Cuyahoga County, tried to plug the hole during the 1977-78 legislative year. The Democrat introduced a bill authorizing the Securities Division to pursue restitution and damages on behalf of duped investors.

        “I had some elderly constituents from the Cleveland area who had been defrauded, and I discovered there was nothing in the state statute that would help these folks,” said Mr. Eckart, now president of the Greater Cleveland Growth Association.

        The bill died in committee. The effort was never revived.

        Ohio Securities Commissioner Debbie Dye Joyce declined to be interviewed for this story. Her spokesman, Dennis Ginty, repeated the division's stance: If bilked investors want their money back, let them sue.

        Ohio law does allow for court- appointed receivers who can muster and sell assets on behalf of defrauded investors, but the state deemed it inappropriate in the Fiorini-Guardian case because of the federal seizures.

        “The commission's authority is to police the securities industry and regulate the activity of those engaged in the selling of securities in Ohio,” Mr. Ginty said. “But collection of damages is left to a civil suit.”

        That appalls Mr. Eckart. He said laws that stop securities fraud, but which don't enable the state to go after the stolen money, are a public disservice.

        “The pretense of protection is worse than no protection at all,” he said.

        Opponents to state-sanctioned fraud recoveries — other than the perpetrators themselves — object to the notion of the state's serving as a collection agency for private parties.

        Ronald Coffey, a Case Western Reserve University law professor who headed the Ohio Commerce Department in 1971, said states risk becoming a “governmental class-action litigation expense insurance” when they seek the return of investors' losses.

        Ultimately, the state — that is, taxpayers — has to decide whether to equip the Securities Division for restitution battles.

        “You're going to have a big state machinery,” Mr. Coffey said. “We would need a big staff of state lawyers to do this. Would you extend this to consumer fraud? Will the state be willing to fund this?”

        In most other states, the answer is yes.

        “I just sent out 32,000-something restitution checks from a Ponzi scheme we just shut down and put into receivership,” said Joe Borg, director of the Alabama Securities Commission. “We sent several hundred checks to Ohio investors. When all was said and done, we were able to get them 65 cents on the dollar.”

        In Alabama, Mr. Borg can order restitution himself, although defendants have the right to challenge him in court. Most states, he said, have the power to seek restitution through noncriminal procedures. But he said states can do more to battle the surge in securities fraud.

        “People don't put their money in the banks anymore,” said Mr. Borg, who is serving a one-year term as president of the North American Securities Administrators Association. “It's in the securities market, and that's where the crooks go.”

        Indiana Securities Commissioner Brad Skolnik thinks that criminal sanctions are the best deterrent to white-collar crime. But when criminal charges aren't filed, he advocates having civil laws with teeth.

        Indiana law permits Mr. Skolnik to go after money stolen from investors. In December, that prompted a Sullivan, Ind., brokerage to repay $384,000, plus interest, to 40 Hoosiers who had bought bonds issued by Living World Missions, an Oklahoma company that defaulted on the bonds.

        “We frequently seek restitution on behalf of investors,” Mr. Skolnik said. “It's an important weapon in our arsenal to police securities fraud in the state. If we didn't have it, the remedies available to us would be substantially less effective. I wouldn't want to lose it.”

        In July 2000, Kentucky joined the states that go the extra mile for defrauded investors. Although it hasn't exercised the power yet, the Kentucky Division of Securities can pursue restitution administratively, subject to a circuit court hearing if the defendant asks for one.

        Division spokeswoman Barbara Nash cited the simple logic behind the law.

        “Usually when somebody has been defrauded, they don't have the money to hire an attorney — because the money was stolen,” she said.
       

Many states help

        A group called the National Conference of Commissioners on Uniform State Laws has worked to iron out statutory quirks from state to state since 1892. Among its accomplishments are the Uniform Commercial Code and the Uniform Interstate Family Support Act. The NCCUSL writes uniform laws. State legislatures decide whether to adopt them.

        Forty-two states have adopted the Uniform Securities Act. The act gives those states a common set of broker-dealer requirements; licensing procedures; prohibited practices; and enforcement actions, including the right to order restitution and fines.

        In other words, fraud victims in those states can lean on their securities administrators to help get their money back.

        “Oftentimes, the administrator is in a position of doing this more quickly rather than waiting for private litigation to develop,” said Richard B. Smith, a former SEC commissioner heading the effort to revise the Uniform Securities Act. “It's something that the federal securities agency has, so it's difficult to understand why the state securities administrators wouldn't have a comparable power.”

        Indiana and Kentucky use the Uniform Securities Act. Ohio doesn't.

        “The commissioner is not interested in adopting the Uniform Securities Act,” Mr. Ginty, the Ohio Securities Division spokesman, said. “The reason is that the Ohio Securities Act adopted in 1913 affords a good historical framework in the regulation of the Ohio securities industry.”

        More specifically, Mr. Ginty said, the division disagrees with the widespread practice of letting defendants settle civil fraud cases without admitting or denying allegations. He said the division prefers its own method of reviewing the fairness of securities offerings. And he said the state does not believe in fining violators because fines might become viewed as a “cost of doing business.”

        At least one Ohio legislator expressed interest in beefing up securities fraud enforcement statutes. Wayne Coates, a Democratic representative from Forest Park, said he would look into it.

        “If there's a gap in the law, it's certain we should do something to protect those that are being defrauded,” he said. “I'd be glad to sponsor legislation on that.”

        Jeff Ward, whose parents might never again see the $380,000 they invested through Mr. Fiorini, is incredulous over the state's inability to recover the money.

        “They can prosecute, but they can't return the money?” he said. “Their heads are up their hind ends and are being deprived of oxygen.”

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