Churning a Client’s Investment Into a Broker’s Bread and Butter

By Nataliya Nemtseva, Spring 2014 Student Intern

churningIt is safe to say that most of us have never made our own butter. We find it nicely packed in a bright container in the dairy aisle of a grocery store. Many, however, may know that butter is made by a process called “churning.” This process involves vigorously stirring or beating the milk to separate out the fat and turn it into butter. But why are we talking about churning?” you ask. In the financial context, the term “churning” is used to describe an excessive trading activity undertaken by a broker in an investor’s account solely for the purpose of, by analogy, producing more “butter,” which is the broker’s commission. This blog post will introduce you to how churning may give rise to a claim against a broker, the measurements that are used to determine if excessive trading has occurred and what you can do to spot or prevent churning.

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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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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.

Investor Advocacy Clinic Comments on FINRA Proposed Rule Change 2014-020

By Nataliya Obikhod (Nemtseva), Spring 2014 Student Intern

The 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: SR-FINRA-2014-020

FINRA has recently proposed SR-FINRA-2014-020, which would prohibit FINRA members from conditioning settlements of customer disputes or compensating aggrieved investors in such disputes for agreeing to expunge or refrain from opposing an expungement of the dispute from the public record. Generally, when customer disputes against brokers or brokerage firms arise, this information is recorded on the Central Registration Depository (CRD) and made available to investors through FINRA’s BrokerCheck. Although records of customer disputes are only eligible for expungement in extraordinary circumstances, such as in cases when there has been a mistake as to the broker’s identity, a study conducted by PIABA revealed that expungements were often granted in circumstances not intended by the original rule. Through its proposed rule change, FINRA seeks to address this issue by preventing expungements from being granted as a result of settlement agreements reached between aggrieved investors and their brokers in customer disputes.

The Clinic’s Comment

file not foundOn May 1, 2014, the clinic submitted a comment letter, expressing its support for adopting this rule change. Although agreeing to expungements may seem to an aggrieved investor like a small price to pay to settle a dispute, expunging the record of such dispute is harmful to other investors, who rely on the information in the CRD when selecting brokers. SR-FINRA-2014-020 is a great step toward ensuring that expungements are granted in the limited circumstances for which they were intended and investors have access to important information about brokers with whom they consider working. To ensure that this rule change achieves the intended purpose, the clinic recommended that FINRA monitor the number of expungements and circumstances in which they are granted after the rule is adopted and that FINRA revisit the issue if necessary.

For more information on expungements under FINRA Rules, see our earlier blog posts dedicated to this topic.

 

The primary student author of the comment letter, Timothy Guilmette, was assisted by student interns Nataliya Obikhod (Nemtseva) and Thomas Abrahamson.

Wondering if There is Something Fishy about Investment Activities in Your Account? What to Do if You Think You Might be a Victim of Stockbroker Misconduct

By Nataliya Nemtseva, Spring 2014 Student Intern

fishyHave you noticed transactions that you did not authorize or understand? Unusually high number of trades in your account? Substantial declines in the value of your investment? These and other signs may point to a broker’s misconduct. If something does not seem quite right about the investment activity in your account, it is worth looking into as it may be the result of a broker’s improper actions. While brokers cannot and should not guarantee the success of your investment, they also may not abuse their position of access or control to serve their own interests. If you suspect your broker of such activity, there are several things you can do.

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Clinic Interns Present Investor Education to GSU ROTC Cadets

presentation

On Tuesday April 22, 2014, Investor Advocacy Clinic student interns Thomas Abrahamson, Timothy Guilmette and Nataliya Nemtseva presented “Take Charge of Your Financial Future” to a group of Georgia State University ROTC cadets.  The early morning session began with Lt. Col. William J. Brooks, PhD, describing the risk of fraud that members of the military face, the importance of the topic and introducing the interns.

ROTCAfter Colonel Brooks turned the presentation over to the clinic interns, Timothy Guilmette recounted his own twelve year military career and discussed the importance of financial readiness.  Nataliya Nemtseva provided an overview of the FINRA Investor Education Foundation 2012 National Capability Study’s findings concerning military members and financial preparedness.  According to Nemtseva’s review of the study, nearly 50% of military members break even or spend more than they earn, 50% do not invest outside of military retirement and 43% do not have emergency funds. Thomas Abrahamson then discussed the importance of budgeting and taught the cadets where to start.  Guilmette provided an overview of a Leave and Earning Statement (LES) to help cadets begin budgeting and provide them with the skills to counsel the soldiers they will soon lead.  The interns also provided practical tips for managing and getting out of debt and setting up an emergency fund.  The formal session concluded with a discussion of the importance of planning and investing now.  Cadets asked several questions concerning budgeting, saving and investing.

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

Colonel Brooks thanked the clinic interns by presenting them with the unit’s coin.

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 continuing to collaborate in the future.

 

Clinic Students to Present Investor Education During Financial Literacy Month

April is financial literacy month, and the Investor Advocacy Clinic’s student interns are making sure that potential investors have the information they need to make wise financial decisions.

On Tuesday, April 22, interns Thomas Abrahamson, Timothy Guilmette and Nataliya Nemtseva will meet with cadets in Georgia State University’s ROTC.  Their presentation, “Take Charge of Your Financial Future,” will discuss financial readiness, budgeting, saving and planning for the future and is tailored for members of the military.

On Wednesday, April 23, graduate research assistant Dylan Donley and fall 2013 student intern D. Russell Stroud will present “There’s no Such Thing as a Free Lunch: Getting to Know the Red Flags of Fraud and Common Scams Against Seniors” to a group of law students studying elder law.  This presentation will educate future lawyers interested in working with seniors, providing them with information and tools to protect seniors from scams.

On Tuesday, April 29, student interns Scott Evans, Benjamin Stubbs and Patricia Uceda will present “Guidance for Your Investment Journey” at the Georgia State University College of Law to current law students in Room 330 at noon.  This presentation will help new investors learn how to protect themselves from becoming victims to investment fraud and make wise decisions as they save for their future.

Each of these presentations is made possible by a grant from the FINRA Investor Education Foundation.

Interested in an investor education presentation for your organization?  Call us at (404) 413.9270 and we would be happy to discuss how the clinic can create a presentation tailored to your audience.