Wednesday’s Word: Boiler Room

By Ben Dell’Orto, Spring 2018 IAC Student Intern

In addition to inspiring a Hollywood movie, Boiler Rooms are a common scheme to pressure investors into purchasing an investment that most likely is not a good one for them. The scheme involves a large group of “salesmen” trying to attract as many investors as possible to the scam. The most common method is through cold calling, where the schemers use high-pressure sales tactics to encourage the potential investor on the other end of the phone call to take advantage of an investment that will yield “high returns” and “no risk” but is only available for a short time. FINRA notes that the caller will often attempt to explain the miracle investment by suggesting that it is founded in an emerging industry or will “play off recent events” to lend legitimacy to the lie. One recently-busted scam in England took advantage of the rising wine industry, and this blog reported on a recent FINRA report of scams increasing on this side of the pond.

While previously usually conducted over the phone, the SEC adds that boiler rooms now may use “emails, text messages, social media, and other means.” These methods lack the pressure created by a persuasive voice speaking directly over the phone, but can still be effective by suggesting that the time to buy is limited, or by pestering with frequent messages.

The most important thing to remember to avoid falling victim to a Boiler Room scheme is to

Take.

Your.

Time.

The fraudsters behind this kind of scheme are relying on a quick decision, so taking a moment to run a broker check and an internet search of the investment before buying will save you from taking a big loss.

Dangerous Clickbait: The SEC Warns Investors About Paid-to-Click Scams

By: Esmat Hanano, IAC Student Intern Spring 2018

At the tail-end of last year, the Securities and Exchange Commission (SEC) issued a warning to investors about Paid-To-Click (PTC) scams. PTC websites “…promise investors a share of the program’s profits in exchange for paying an upfront fee or buying products.” The PTC site might even promise the investor advertising space on its network of ads in addition to a share in the program’s profits. In this way PTC sites seem to offer the best way of making money on the internet—buy online “ad packs” then sit back and watch as your profits roll in! However, the SEC warns that these websites are being used to further Ponzi schemes. In fraudulent schemes, a new investor will place money in a PTC program which will then be sent to previous investors in the same program as their “profits.” Not all PTC sites are malicious, but investors thinking about buying into such programs must be wary of the promises these websites make. Continue reading

FINRA’s Crypt[ic] Message

By W. Dowdy White, Spring 2018 IAC Student Intern

If you were going to walk across a balance beam one hundred feet in the air, would you prefer for that beam to be made out of either steel or a toothpick? The answer to that question is easy – everyone would pick steel. If you were investing all of your money with the risk of losing it all, would you prefer to invest in a fund that promises huge returns at a high risk or would you rather invest in a fund that promises small returns at a low risk? The answer to that question is bit more difficult to answer.

Cryptocurrencies are currently the latest fad in investing. Specifically, consumers flock to these investments by the boatload because these funds promise exponentially high returns. However, according to a recent investor alert from the Financial Industry Regulatory Authority (FINRA) in December 2017, cryptocurrencies may not be the slam-dunk investment that everyone makes them out to be. In fact, FINRA warns potential investors not to be fooled by “unrealistic predictions of returns and claims made through press releases, spam emails, or posted online . . .” at the risk of their money vanishing into thin air.

There have been many cryptocurrency-related stock scams over the past several years. In fact, the Securities and Exchange Commission (SEC) suspended trading in a large number of securities because of some questions about the accuracy of some cryptocurrency-related activities. Specifically, the SEC questioned the accuracy of claims ranging from the value of the assets of the now-defunct company, DIBCOINS, to statements by several companies who planned to conduct Initial Coin Offerings (ICO).

Because of the very prominent success of companies like Bitcoin, the cryptocurrency marketplace is emphatically booming. With more cryptocurrencies appearing on the market on a regular basis, it is easy for company promoters to make outrageous claims about their product without the research and facts to back them up. To assist consumers in avoiding these situations, FINRA released six tips to avoid costly mistakes in cryptocurrency investing.

Continue reading

Professional Financial Adviser’s Pitch Goes Horribly Wrong to Professional Athletes

By Qudsia Shafiq, Fall 2017 IAC Student Intern

What can happen when a financial adviser meets deep-pocketed athletes who refuse to invest in his movie venture proposals? For one financial adviser, this meant ignoring the pros that told him no.

On May 6, 2016, the U.S. Securities and Exchange Commission (SEC) filed a complaint against Louis Martin Blazer III for allegedly repeatedly taking money from his clients under the guise of raising money for two film projects: “Mafia the Movie” and “Sibling.” The SEC charged Blazer, a Pennsylvania-based financial adviser with defrauding pro athletes and lying to SEC Examiners. The high-end, concierge firm allegedly took nearly $2.35 million from five different clients without their consent, all to invest in the two movie projects. Continue reading

Duck from Deception: Find the Fake News Before it Finds Your Wallet

By Qudsia Shafiq, Fall 2017 IAC Student Intern

Are you smarter than the ads you see? While you may think you can outsmart any ad, have you considered the possibility that you may not know an ad when you see one?

Think about where you turn to for investment advice: Is it from individuals (such as your financial adviser, friends, and relatives), traditional news sources (like television shows, radio stations, newspapers or magazines), or is it from the internet on your personal computer, tablet or smartphone? For most individuals, it’s usually a combination of these sources. But one thing these categories have in common is that they are platforms for product placement and advertisements. Continue reading

Legal News – Affinity Fraud: Wolves in Sheep’s Clothing

By Abigail Warren, Fall 2017 IAC Student Intern

Earlier this year, the SEC  announced fraud charges against a Michigan pastor.  The pastor, and owner of a real estate company, allegedly targeted members of his congregation, along with laid off auto workers, promising to roll their money into IRAs and invest in his company.  The pastor allegedly collected 6.7 million from over 80 investors, even though he was not registered to sell securities, guaranteeing high returns and inflating the value of his real estate company. The SEC says he allegedly invested none of the 6.7 million, scamming groups in his community who entrusted their money to him.

Unfortunately, these allegations sound like affinity fraud, an all too common issue.   In affinity fraud, fraudsters prey on groups, such as religious organizations, the elderly, immigrants, retirees, and ethnic groups.  Often, they are a group member or they use a trusted member to recruit potential investors, the scam even unbeknownst to the friend “spreading the word.”  Affinity fraud is also gaining online presence, with fraudsters using social media sites to target online groups.  According to the SEC, most affinity fraud surfaces as Ponzi or pyramid schemes, soliciting fake investments for personal use.  Due to the nature of these “affinity” scams, the damaged often investors opt out of reporting the fraudster, preferring to handle it within the group.

Among affinity fraud’s characteristics, the SEC warns investors to look for “red flags” such as “spectacular or guaranteed returns.”  For tips on how to avoid affinity fraud visit the SEC and FINRA.

If you suspect affinity fraud contact the SEC or your state regulator.

Veterans: You Protected Our Nation, Now Protect Your Assets

Law IACby La’ Nise Harrington, Spring 2017 Student Intern

Unfortunately, our nation’s protectors are at times the very people who are targeted for scams. The scams are usually one of two types: those that offer special treatment for veterans and those that prey on unique veteran characteristics. Here, are the seven most common veteran scams as identified by Scambusters.org:

Continue reading