Friday’s Fraud- Crowdfunding: What You Need to Know About Small Business Investments

By Benjamin Stubbs, Spring 2014 Student Intern

crowdfundThis week’s and next week’s frauds are geared more toward small business owners who are looking to raise funds for their businesses without selling registered securities. In 2012, legislation was passed that was intended to help startup companies raise capital. In NASAA’s words, the changes in the law “have changed the business funding landscape” by offering “new and enhanced ways to raise capital through crowdfunding, public advertising for investors under JOBS Act regulations and angel funding ‘solutions’ . . . .”

Though these new opportunities may be a great way for small companies to raise money through small investments, this new landscape brings with it potential risks as well, including risks for both entrepreneurs and individual investors. Ninth on NASAA’s list of most common investment frauds of 2013 are capital-raising pitfalls, but this blog will focus on investment or equity-based crowdfunding—one of the potential pitfalls—because it is probably applicable to more readers.

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Wednesday’s Word: FINRA

By Dylan Donley, Spring 2014 Graduate Research Assistant

The Financial Industry Regulatory Authority, otherwise known as FINRA, is the largest independent regulator for all securities firms doing business in the United States. FINRA is a non-profit organization authorized by Congress dedicated to investor protection and market integrity through effective and efficient regulation of the securities industry. In achieving those ends, FINRA provides a great wealth of information on its website for investors and investment professionals alike.

Things Are Not Always What They Seem: Beware of the Tricks Scammers Have Up Their Sleeve to Make Their Entities Appear Legitimate

By Nataliya Nemtseva, Spring 2014 Student Intern

something up sleevesIf you have ever watched the National Geographic Channel TV series, “Brain Games,” you have seen that our brains use shortcuts to interpret information presented to us, based on preconceived notions and our experiences with similar situations. For example, one of the episodes demonstrated that individuals are likely to believe even an implausible story if it comes from someone who looks like a news correspondent, because we generally rely on these professionals for such information. Hoping that individuals would similarly trust investment offers more if they appear to be supported by or connected to the government, some investment scammers developed fraudulent schemes, geared at giving the impression that the investment solicitation is approved by the government. Over the last few years the SEC has issued multiple alerts, warning investors of such schemes and urging individuals not to take shortcuts when it comes to their investments. This blog entry will provide you with some examples of the tricks fraudsters use to make their entities appear legitimate in order to induce individuals to invest in fictitious entities.

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Friday’s Fraud – Digital Currency: The Dangers of Modern Monies

By Benjamin Stubbs, Spring 2014 Student Intern

digital currencyYou may have heard of digital, virtual or cryptocurrencies before. If you haven’t, check out former Student Intern James Gallagher’s post on Bitcoin from last November. You may also remember that back in March, we told you that FINRA released an alert about the risks and potential scams involved with Bitcoin and other digital currencies.

Digital currencies have been in the news a lot lately, and not all of the news has been positive. Digital currency is eighth on NASAA’s list of most common investment frauds of 2013, and is listed as one of the newer threats that individual investors face.

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Wednesday’s Word: Expungement

By Dylan Donley, Spring 2014 Graduate Research Assistant

The term expungement refers to the process by which brokers are able to request their customer dispute records listed on the Central Records Depository (CRD) and FINRA’s public records be removed, so long as certain requirements set forth under FINRA’s rules are met.

For additional information on expungement, read more here.

SEC Files Complaint Related to Unregistered Oil and Gas Investments

In his Friday’s Fraud series, Spring 2014 Student Intern Benjamin Stubbs wrote about oil and gas investment frauds, encouraging investors to conduct research on those selling such investments before investing.

Stubbs’ advice came just a few days before the SEC issued a press release detailing a complaint against Behrooz Sarafraz.  The SEC alleged Sarafraz sold millions in oil and gas investments without being properly registered or associated with a broker-dealer.  The release reports that Sarafraz agreed to settle the charges by consenting to a $22 million dollar judgment.  The settlement is still subject to court approval.

When investing your hard-earned money, be sure you are working with a properly registered professional.  Use FINRA’s BrokerCheck tool as part of your due diligence before making any investment.

SEC Issues Investor Alert on Marijuana-Related Investments

Earlier this year, Spring 2014 student intern Nataliya Nemtseva warned you about marijuana stock scams in her Weed out Investment Scams post.

Last week, the SEC also weighed in, issuing an investor alert on marijuana-related investments. In its alert, the SEC detailed trading suspensions of five companies with operations relating to the marijuana industry.  The alert also provides advice to investors interested in marijuana-related investments, including the risks of penny stock or microcap investments, risks related to unregistered offerings and the research potential investors should undertake before investing.