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

Friday’s Fraud: Self-Directed IRAs – with Flexibility Comes Risk

By: Brittany DeDiego, Fall 2014 Student Intern

thief2The flexibility of self-directed IRAS also comes with a higher risk of fraud. The SEC first alerted investors to this risk in September 2011. An Individual Retirement Account (IRA) is a form of retirement account that provides investors tax benefits for their retirement savings. All IRAs are held by custodians or trustees for the investor. Custodians or trustees can include banks, trust companies, and any other businesses approved by the IRS. A self-directed IRA is also held by a trustee or custodian, but it permits the account holder to invest in a broader set of assets such as real estate, promissory notes, tax lien certificates, and private placement securities. These investments carry risks, such as a lack of liquidity and disclosure, that might not be present in an IRA. In a non-self directed IRA, investments are limited to firm-approved stocks, bonds, mutual funds and CDs.

Self-directed IRAs also carry an additional risk of fraud. Fraudsters target these accounts for Ponzi schemes and other scams because the self-directed IRA permits investors to hold unregistered securities, and the custodian or trustee most likely will not investigate the background of the individual offering the unregistered investment.

The most common ways fraudsters promote the weaknesses and misperceptions of self-directed IRAs to commit fraud include: Continue reading

Clinic Interns Work with GSU ROTC Cadets

ROTCOn Thursday November 13, 2014, Investor Advocacy Clinic student interns Brittany DeDiego and Christopher Pugh presented “How to Spot and Prevent Investment Fraud” to a group of Georgia State University ROTC cadets.  The early morning session covered common scams, red flags of fraud and how to be an informed investor.

The student interns explained some common tactics of fraud, including phantom riches, source credibility, social consensus, reciprocity, scarcity, and affinity fraud. They also highlighted other red flags investors should be aware of, like guaranteed returns, complex strategies, unregistered products, overly consistent returns, missing documentation, account discrepancies, and pushy salespeople.

presentation1The interns then led the cadets through a Fraud Awareness Quiz prepared by the North American Securities Administrators Association. The cadets answered each question, then the student interns shared and explained the correct answer.  The cadets excelled on the quiz and showed off their knowledge of safe investing.

At the end of the presentation, the student interns shared several resources that can help prevent investment fraud such as FINRA’s BrokerCheck and the Security Exchange Commission’s EDGAR website. Finally, the interns led a robust question and answer session where the cadets asked several thoughtful questions about investment fraud.

Clinic interns provided the cadets with additional educational materials to learn more about this important topic, including SaveandInvest.org’s publication Money & Mobility: For Military Personnel and Families.

cadets1

The Investor Advocacy Clinic thanks Colonel Brooks and the Georgia State University ROTC for the opportunity to meet with these future leaders.  We look forward to continued collaboration in the future.

 

Frontier Funds: Travel with Care

By: Brittany DeDiego, Fall 2014 Student Intern

passportBrazil and China might sound like a fun, exotic vacation spots, but should they be a hotspot for investing? FINRA has posted an investor alert for “frontier funds” that invest in developing securities markets such as Argentina, Lebanon, Nigeria, Slovenia, and Vietnam. Americans may choose to invest in foreign markets as a way to diversify and spread investment risk among foreign markets and economies, and to take advantage of the potential for growth in the emerging market. However, there is also a high risk associated with these frontier investments because of the level of uncertainty associated with these developing markets. Continue reading

Wednesday’s Word: Pyramid Schemes

By Brittany DeDiego, Fall 2014 Student Intern

pyramidA pyramid scheme is a classic type of investment fraud where participants attempt to make money on their investments by recruiting new investors into the program. These pyramid schemes are typically sold to investors claiming that you will make extremely high returns in a short time period for little effort. Some of these schemes attempt to disguise themselves as legitimate businesses selling some product or service, however, what the fraudsters are really doing is using the money from the new investors to pay off the old investors. These schemes eventually collapse when the fraudsters cannot raise enough money to continue to pay off their investors, resulting in huge losses for the later investors. Continue reading

Meet Student Intern Brittany DeDiego

dediegoBrittany DeDiego is a third-year student at Georgia State University College of Law working in the Investor Advocacy Clinic for the fall 2014 semester. DeDiego has a Bachelor’s of Arts in International Affairs from the University of Georgia.

“The clinic allows students the opportunity to work with and contribute to their community by working with smaller investors who may not be able to afford counsel,” says De Diego.

DeDiego is looking forward to practicing law in Atlanta after she graduates from Georgia State University College of Law in the spring of 2015.