Friday’s Fraud: Advance Fee Fraud

By: Ryan Corbin , Fall 2014 Student Intern

FridayJust from the name you can likely guess what advance fee fraud is. As you probably guessed, this type of fraud occurs when an investor is asked to pay a fee up front in order for the deal to go through, but then you never see your money again.  You’re likely thinking:  I would never fall for that!  However, just a couple weeks ago the SEC released an Investor Alert due to the thousands of complaints that they have received regarding this type of fraud. Continue reading

Thinking Money: The Psychology Behind Our Best and Worst Financial Decisions

By Patrica Uceda, Fall 2014 Graduate Research Assistant

filmHave you ever made a financial decision that you thought was a good one, only to regret it the very next day? If you have, you’re not alone; studies have shown that as humans we are practically hard-wired to overspend, some more so then others. Apparently, the act of overspending lights up our brain’s pleasure centers.

Revelations such as this one are plentiful in the emerging field of behavioral economics, which aims to explore why consumers spend, why we save, and how we think about money. The FINRA Investor Education Foundation has released a new documentary called “Thinking Money” which explores the psychology behind our financial decisions. You can watch the preview here. Being aware of what may be affecting our financial decisions will lead to more informed decisions so that we can avoid that feeling of regret.

“Thinking Money” is airing on public television stations nationwide; contact your local public television station to find out when it will air in your community. You can also pre-order a free copy of the DVD that will be released in December.

Investor Advocacy Clinic Comments on FINRA Regulatory Notice 14-35

By: Brittany DeDiego, Fall 2014 Student Intern

LAW_IACThe GSU Investor Advocacy Clinic is committed to protecting the interests of individual investors. Therefore, in addition to providing legal services and participating in investor education and outreach, the clinic is also actively involved in the public comment process relating to rule changes proposed by FINRA.

The Proposal: Regulatory Notice 14-35

FINRA’s recent Regulatory Notice 14-35, would maintain the quarterly statement delivery requirement, but would allow investors to direct the transmission of customer account statements and other documents to third parties. The change would also allow for statements to be delivered electronically and would require investment firms to include a statement advising customers to report promptly any inaccuracy or discrepancy in their account. This rule will require that the firm, clearing firm and their respective contact information for customer service be clearly and prominently placed on the front of the statement. The contact information for the clearing house, however, can be located on the back of the statement if the information is in bold or highlighted letters.

The Clinic’s Comment

On October 31, 2014, the clinic submitted a comment letter, expressing its support for adopting this rule change. Although agreeing with FINRA that third parties should be able to receive quarterly statements electronically and that SIPA disclosures should be prominently displayed on statements, the rule could go further to protect investors. Continue reading

Beware Penny Stock Scams Involving Hyping Dormant Shell Companies

By Patricia Uceda, Fall 2014 Graduate Research Assistant

questionsThe SEC is warning investors that some penny stocks that are being aggressively promoted are actually stocks of dormant companies that currently have no business operations and are essentially empty shells. Penny stocks are highly susceptible to market manipulation through the use of pump-and-dump schemes.

As we’ve told you before, pump-and-dump schemes involve a fraudster buying a large amount of low-priced penny stocks and then using aggressive advertising techniques to pump up the price of the stock. Once the stock price is artificially inflated, the fraudster will then dump their shares, causing the price to fall and leaving investors with worthless shares of stock. Continue reading

Friday’s Fraud: Hot Air is Not Just for Balloons

By Kori Eskridge, Fall 2014 Intern

balloonsIf it sounds too good to be true, it probably is. That’s what many investors have learned after investing in high-yield investment programs (HYIPs). HYIPs, also called Prime Bank Investments, offer extremely high daily, weekly or monthly rates of return via the Internet but often, as the SEC noted, those returns are just a bunch of “hot air.” Continue reading

Affinity Fraud in Action: Ex-Marine Allegedly Targets Fellow Military in Hedge Fund Fraud

By: Brittany DeDiego, Fall 2014 Student Intern

military3Some fraudsters take advantage of their position in the military to lure other military personnel into investment schemes. This is known as affinity fraud. For example, on August 6, 2013, a court granted the SEC’s request for an emergency court order to stop a hedge fund investment scheme by Clayton Cohn, a former marine living in Chicago where he had been allegedly defrauding his fellow veterans, current military, and other investors out of millions of dollars. Cohn’s hedge fund management firm Market Action Advisors raised nearly $1.8 million from his various investors, but he allegedly invested less than half of that money and used more than $400,000 of investor funds for his own personal expenses, including a mansion, a luxury car, and large tabs at high-end nightclubs. Cohn allegedly lied to his hedge fund investors about his use of the proceeds, his success as a trader, the performance of the hedge fund, and his personal stake in the hedge fund. The SEC alleges that Cohen in fact only invested $4,000 of his own money. Continue reading