Washington, D.C., Jan. 4, 2012 — The Securities and Exchange Commission today charged an Illinois-based investment adviser with offering to sell fictitious securities on LinkedIn and issued two alerts in an agency-wide effort to highlight the risks investors and advisory firms face when using social media.

The SEC’s Division of Enforcement alleges that Anthony Fields of Lyons, Ill. offered more than $500 billion in fictitious securities through various social media websites. For example, he used LinkedIn discussions to promote fictitious “bank guarantees” and “medium-term notes.” The postings resulted in interest from multiple purported potential buyers.

“Fraudsters are quick to adapt to new technologies to exploit them for unlawful purposes,” said Robert B. Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Social media is no exception, and today’s enforcement action reflects our determination to pursue fraudulent activity on new and evolving platforms.”

According to the SEC’s order instituting administrative proceedings against Fields, he made multiple fraudulent offers through his two sole proprietorships – Anthony Fields & Associates (AFA) and Platinum Securities Brokers. Fields provided false and misleading information concerning AFA’s assets under management, clients, and operational history to the public through its website and in SEC filings. Fields also failed to maintain required books and records, did not implement adequate compliance policies and procedures, and held himself out to be a broker-dealer while he was not registered with the SEC.

One of the alerts issued today – a National Examination Risk Alert titled “Investment Adviser Use of Social Media” – provides staff observations based on a review of investment advisers of varying sizes and strategies that use social media. In growing numbers, registered investment adviser firms are using social media to communicate with existing and potential clients, promote services, educate investors, and recruit new employees.

“As investment advisers increasingly utilize social media to communicate with clients and potential clients, firms need to be mindful of the applicable standards governing those communications,” said Carlo di Florio, Director of the Office of Compliance Inspections and Examinations (OCIE).

The alert reviews concerns that may arise from use of social media by firms and their associated persons, and offers suggestions for complying with the antifraud, compliance, and recordkeeping provisions of the federal securities laws. The alert notes that firms should consider how to implement new compliance programs or revisit their existing programs in the face of rapidly changing technology.

The SEC also issued an Investor Alert titled “Social Media and Investing: Avoiding Fraud” prepared by the Office of Investor Education and Advocacy. The alert aims to help investors be better aware of fraudulent investment schemes that use social media, and provides tips for checking the backgrounds of advisers and brokers. A new Investor Bulletin titled “Social Media and Investing: Understanding Your Accounts” contains best practices including privacy settings, security tips, and password selection aimed to help social media users protect their personal information and avoid fraud.

“More and more, investors are using social media to help them with investment decisions. While social media can provide many benefits for investors, it also makes an attractive target for fraudsters. The Investor Alert provides some useful tips to help investors look out for securities fraud online,” said Lori J. Schock, Director of the Office of Investor Education and Advocacy.

For additional information on avoiding securities fraud, visit the SEC’s website for individual investors: www.investor.gov.

http://www.businessweek.com/ap/financialnews/D9RGJ18O0.htm

http://investor.gov/investing-basics/avoiding-fraud/case-studies

http://www.forbes.com/sites/jayadkisson/2011/09/24/tis-the-season-for-tax-shelters-fa-la-la-la-la-and-grab-your-wallet/

The North American Securities Administrators Association

2011 NASAA Top Investor Traps

The following alphabetical listing of the Top 10 financial products and
practices that threaten to trap unwary investors was compiled by the securities
regulators in NASAA’s Enforcement Section:

Products

Distressed Real Estate Schemes. Investment offerings involving distressed real estate have been on the rise following the collapse of the real estate bubble. While many legitimate investment offerings are tied to real estate, investment pools targeting distressed real estate have become increasingly popular with con artists as well as investors. Investments in properties that are bank-owned, in foreclosure, pending short sales or otherwise in distress inevitably carry substantial risks and should be evaluated carefully. Just like other securities, interests in real estate ventures also must be registered with state securities regulators.

• In February 2011, a Florida man pleaded guilty to conspiracy to commit mail and wire fraud in a scheme that solicited $2.3 million from 39 investors nationwide to purchase and refurbish distressed properties and, in turn, sell them for a profit. Investors were issued corporate promissory notes with returns of up to 12 percent. Investigators determined that the investments were used for personal gain and to make Ponzi-type distributions to other investors.

Energy Investments. Swindlers continue to attempt to trick investors by using high-pressure marketing tactics touting the mystique associated with untapped oil and gas reserves and bountiful production runs. Even genuine oil and gas investments almost always bear a high degree of risk. Investors must realize the distinct possibility that they could lose their total investment in legitimate ventures. Energy investments tend to be poor alternatives for those planning for retirement and should be avoided by anyone who cannot afford to strike out when trying to strike it rich.

• Colorado securities regulators issued a cease and desist order earlier this year against a Texas oil and gas company for allegedly violating state securities registration and licensing provisions. The case came to light after a company sales agents unwittingly “cold called” an employee of the Colorado Division of Securities and offered a joint venture interest in two Pennsylvania oil wells with next to no drilling risk.

Gold and Precious Metals. Higher precious metal prices and the promise of an ever-appreciating, “tangible” asset have lured unsuspecting investors into a variety of scams. Many recent schemes are variations on old themes: a promoter seeking capital for extraction equipment to reopen a long dormant mine in exchange for a full refund plus interest and a stake in the mine. In another case, operators claimed to have special coins or nuggets that they can store or trade for investors in special markets for high profits and returns. Investors suffered heavy losses in each of these cases. And despite ubiquitous promises to the contrary, there are no guarantees with gold or precious metals, even in legitimate markets. In the spring of 2011, silver’s value declined by 30 percent in a single three-week period.

• In 2011, the founder of Florida-based Gold Bullion Exchange pleaded guilty to fraud charges in a scheme that collapsed on more than 1,400 investors who lost $29.5 million. Investors were solicited through a sophisticated telemarketing operation to purchase precious metal bullion using purported “leverage” financing. Investors were led to believe that they would need only to provide a fraction of the total cost of the purchased metals, with the remainder of the purchase price to be covered by margin-type financing, which would purportedly be extended to the investor by a “clearing firm.” State and federal investigators found that the clearing firm delayed or ignored requests by investors to sell their precious metals investments. Despite having paid commissions and fees of up to 18 percent for their precious metals investments, investigators determined that no bullion was purchased.

Promissory Notes. Investors seeking safety in uncertain economic conditions or those enticed by the promise of big returns through a private, informal loan arrangement may suffer deep losses investing in unregistered or fraudulent promissory notes. These notes give investors a false sense of security with promises or guarantees of fixed interest rates and safety of principal. However, even legitimate notes carry some risk that the issuers may not be able to meet their obligations. Often initially pitched as personal loans or short-term business arrangements, most promissory notes and the persons who sell them must be registered with state securities regulators. Unregistered promissory notes are often covers for Ponzi schemes and other scams. Investors should check with their state regulator to determine whether a promissory note and the seller/borrower are properly registered.

• A former FBI agent was convicted in Alabama this year after an investigation by Alabama securities regulators revealed that he used promissory notes guaranteeing returns as high as 12 percent to lure investors into a Ponzi scheme. The funds were to be invested in real estate and medical technology ventures, but investigators determined that the former agent used most of the funds, more than $4 million, to pay Ponzi-style returns to previous investors and for his personal use.

Securitized Life Settlement Contracts. Life settlement contracts are investments in the death benefits of insurance policies that insure the lives of unrelated third parties. Legitimate investments in life settlement contracts involve a high degree of risk, and investors may be responsible for routinely paying costly premiums for policies that insure people who outlive their life expectancies. Outside the legitimate offerings, crooks are embracing new schemes to deceive even cautious investors. For example, “securitized” life settlement contracts are increasingly popular investments that combine life settlement contracts with traditional securities, such as bonds that supposedly guarantee a fixed return on a fixed date, regardless of whether the insured outlive their life expectancies. This risk-reducing structure has too often proven fraudulent and left victims with nothing but worthless paper issued by a bonding company that does not maintain sufficient assets to fulfill the guarantee, operates in an unregulated overseas territory or simply does not exist.

• In 2011, two executives of National Life Settlements LLC of Houston were indicted on charges of securities fraud and the sale of unregistered securities after an undercover investigation by Texas securities regulators determined the pair had sold $30 million in unregistered promissory notes secured by life settlement contracts. One of the executives was a three-time convicted felon with a long history of investment fraud. The promise of a safe investment with annual returns as high as 10 percent served as bait to lure investors into what a court-appointed receiver testified was a Ponzi scheme. The company sold these unregistered investments largely to retired teachers and state employees through a network of financial professions, including insurance agents and securities brokers. The criminal indictment alleges that investors’ money was spent on commissions and personal expenses, including the purchase of houses and cars.

Practices

Affinity Fraud. Marketing a fraudulent investment scheme to members of an identifiable group or organization continues to be a highly successful and lucrative practice for Ponzi scheme operators and other fraudsters. A recent national study of Ponzi schemes over the past decade found that one in four were marketed to affinity groups to increase the scheme’s credibility and build the fraud. The most commonly exploited are the elderly or retired, religious groups, and ethnic groups. Investment decisions should always be made based on careful evaluation of the underlying merits rather than common affiliations with the promoter.

• A 73-year-old North Carolina man pleaded guilty this year to 19 felony counts of securities fraud following an investigation by North Carolina securities regulators that determined he had collected more than $18.5 million from more than 100 investors, many of whom he knew from church or other social circles. The investments for venture capital investments in various unspecified companies came with a promissory note guaranteeing annual returns of between 10 and 50 percent. Bank records revealed a Ponzi scheme using money from new investors to pay returns to previous investors.

Bogus or Exaggerated Credentials. State securities regulators have led the effort to prevent the misuse of credentials or designations intended to imply special expertise or training in advising senior citizens on financial matters. Since 2008, 29 states have adopted laws or rules preventing such misuse. Now, state regulators are noting an increase in the use of other bogus credentials or exaggerated designations. State securities regulators have encountered salesmen pitching financial services or products with nonexistent law degrees or CPA certificates and expired or nonexistent CRD numbers. Others have boasted of impressive sounding designations that prove to be meaningless. In every circumstance, investors should press for full disclosure and the meaning behind all designations, and should check with their state regulator if they have any suspicions about claimed credentials.

• Securities regulators in Utah came across a broker who listed “C.H.S.G.” after his name on his business card. When asked, the broker told regulators the initials stood for “Certified High School Graduate.”

Mirror Trading. The securities market is constantly evolving to provide investors with new products, different platforms and a variety of choices. The latest evolution is “mirror trading,” which is promoted as an automated trading platform that ensures investors will participate in real-time transactions placed or executed by a skilled and knowledgeable third party. Whenever the third party executes a trade in his or her account, the same trade is mechanically placed on behalf of the investor in the investor’s account. Investors should not be lulled into a false sense of security, and they need to continue to objectively evaluate and carefully consider all new or popular investment platforms. They should also recognize that unscrupulous traders and promoters may use trendy platforms such as mirror trading as a way to launch fraudulent schemes or manipulate markets by lying about their qualifications, misrepresenting the success of their strategies, or concealing their motivations and conflicts of interest.

Private Placements. Investors should be aware that, even in the case of legitimate issuers, private placement offerings are highly illiquid, generally lack transparency and have little regulatory oversight. In the United States, the federal exemption for private placement offerings provided under Rule 506 of Regulation D continues to be abused by criminals. Although properly used by many legitimate issuers, unscrupulous promoters use Rule 506 to cloak an otherwise fraudulent offering in legitimacy.

• In 2011, U.S. and Canadian authorities convicted three individuals of criminal fraud charges related to the sale of $33 million in oil and gas private placement offerings. The defendants claimed the securities were exempt from registration under Rule 506. In an attempt to avoid regulatory scrutiny, the defendants organized their company in the Bahamas and sold the securities from a boiler room located in Ontario, Canada, while telling investors the company was located in Kentucky. Securities regulators also have taken civil fraud actions against private placement issuers, Medical Capital Holdings, Inc. and Provident Royalties, which raised more than $500 million from investors though private offerings sold by dozens of broker-dealers. The companies are alleged to have defrauded investors by misrepresenting the use of the investment proceeds and misappropriating millions in investor funds.

Securities and Investment Advice Offered by Unlicensed Agents. State securities regulators have identified a consistent increase in investor complaints regarding salesmen unlicensed as securities brokers or investment advisers giving investment advice or effecting securities transactions. For example, insurance agents offering securities or investment advice without a securities license have not demonstrated sufficient expertise to legally recommend that an investor liquidate securities holdings in favor of insurance products. Investors are often unaware that their insurance agent may not be licensed to give investment advice, and these recommendations too often turn out to be unsuitable or result in investors placed in under-performing products or those with hidden fees or long lock-up periods. Investors should insist that any time anyone recommends or suggests any transaction related to an investor’s stocks, bonds, mutual funds or other securities holdings, the person must produce a proper license.

• In 2011, an insurance agent unlicensed to sell securities and his manager were barred from working in the Missouri securities industry for five years after Missouri securities regulators uncovered a complex scheme that saw the liquidation of more than $7 million in securities investments from 180 customer accounts. Agents had moved most of these funds into proprietary fixed or equity indexed annuities.

http://www.nasaa.org/3752/top-investor-traps/

This from the U.S. Securities and Exchange Commission www.investor.gov web site:

“For many Americans, retirement can be an alluring stage of life—a time when many hope
to finally have the time to try new hobbies or travel. But retiring comfortably and being
able to do the things you dream about requires a steady stream of income that lasts as
long as you do. The earlier you retire, the more important it is to manage your retirement
assets wisely.

Unfortunately, some financial “experts” tout early retirement schemes that promise
more than they can deliver. This Fact Sheet will help you avoid being misled by flawed
or even fraudulent retirement pitches, particularly those that dangle the prospect of
early retirement with little or no reduction in income compared to your working years.
It describes real-life examples of fraudulent early retirement pitches, provides tips on
how to recognize and avoid these sorts of pitches and tells you where to turn for help.”

Click here for the four page “seminar” http://www.investor.gov/sites/default/files/Early-Retirement-Seminars-101.pdf

http://www.irs.gov/newsroom/article/0,,id=238262,00.html

Job hunters and those struggling to make money and get out of debt were common targets of fraudsters, hackers and deceptive businesses in this tough economy.

Following, in no particular order, is BBB’s list of top scams and rip-offs that took advantage of consumers and small business owners across the U.S. in 2010:

• Job Hunter Scams – Scams targeting job hunters vary and include attempts to gain access to personal information such as bank account or social security numbers and requirements to pay a fee in order to even be considered for the job.
• Debt Relief and Settlement Services – BBB warned consumers in 2010 to seriously consider third-party assistance for getting out of debt. These companies often require upfront fees and potentially leave the consumer drowning in even more debt. Complaints to BBB about debt relief and settlement services increased by approximately 30 percent in 2010, according to tentative year-end estimates.
• Work from Home Schemes – Some work from home schemes promise to teach the secrets to making money online, others claim you can make money assembling items at home or get paid to be a mystery shopper. Some victims even found that their opportunity to work from home was a job to fence stolen goods. The end result is that instead of getting paid, you can end up losing hundreds—if not thousands—of dollars
• Timeshare Resellers – Complaints to the BBB about the timeshare industry—including deceptive resellers—increased by over 40 percent according to 2010 estimates. Timeshare owners who are desperate to get rid of their costly vacation property are being targeted by companies that claim they have an eager buyer. The company tells the seller they just have to pay up to several thousand dollars to cover fees. After paying the fees, the seller never hears from the company again.
• Not So “Free” Trial Offers – Misleading free trial offers online for diet supplements, penny auctions and money making schemes blanket the internet resulting in thousands of complaints ever year. The free trial offers seem no-risk but complainants state they were repeatedly billed every month and found it extremely difficult to cancel.
• Itinerant Home Repair/Roofers – BBBs across the country received complaints from consumers who answered a knock from a door to door salesman or itinerant worker who eventually failed to deliver on promises to fix their roof or conduct other work to the home. Complaints to BBB about roofing companies increased by roughly 40 percent in 2010, according to tentative estimates, due in part to one company that solicited door to door, American Shingle, which received nearly 1,000 complaints nationwide after going bankrupt and not providing new roofs to angry customers.
• Lottery and Sweepstakes Scams – The victim—often a senior citizen–receives a letter in the mail or phone call from someone pretending to be with Reader’s Digest, Publisher’s Clearing House or a phony foreign lottery. The scammer claims that the victim has won millions but must first wire hundreds or even thousands of dollars back to the scammers to cover taxes or some other bogus fee. The victim wires the money, but the prize never arrives.
• Identity Theft – There are any number of ways a person can become a victim of identity theft. Through low-tech theft, phishing emails, phishing phone calls, smishing text messages, or even through no fault of your own as the result of a corporate data breach, millions fall victim to identity theft every year.
• Advance Fee Loan Scams – A perennial problem, advance fee loan scams prey on consumers and business owners who are struggling financially. Victims are told they qualify for large loans but must pay upfront fees—often more than a thousand dollars. The victim wires money to the scammers, but never receives the loan.
• Over-Payment Scams - Over-payment scams typically target small business owners, landlords or individuals with rooms to rent and sellers on classifieds or sites like Craigslist. The scammers overpay the amount for the services or products and then ask the victim to wire the extra amount back to them or to another fraudulent entity. Ultimately though, the check is forged and the victim is out the money wired back to the scammers.

Consumers or small business owners victimized by a scam can contact their local BBB or file a complaint at bbb.org.  Always research a business with BBB before you sign any contracts or hand over any money.

Tricks of the Trade: Outsmarting Investment Fraud
A New, Hour-long Documentary on Preventing Investment Fraud

A DVD of this information feature is now available for free from www.SaveandInvest.org.

Click to watch the trailer...

Investment fraud does happen … and it can happen to you. “Tricks of the Trade: Outsmarting Investment Fraud” is an hour-long documentary on preventing investment fraud. Utilizing compelling stories of victims and perpetrators, the video uncovers the persuasion tactics that con artists use to defraud their victims and the basic tools investors can use to defend against fraud.

“Tricks of the Trade: Outsmarting Investment Fraud” was developed by the FINRA Investor Education Foundation, in partnership with AARP.

WASHINGTON (August 3, 2010) – The North American Securities Administrators Association (NASAA) today released its annual list of traps that cautious investors should avoid when seeking to jump-start their investment portfolios as the impact of the financial crisis and increased market volatility continue to reverberate along Main Street.

NASAA President and Texas Securities Commissioner Denise Voigt Crawford said investors rebuilding nest eggs damaged by the market collapse as well as those frustrated with low interest rates are particularly susceptible to speculative investments that most often turn a promise for profit into thin air.“Knowledge, attention to detail and a healthy sense of skepticism are a triple threat to fight investment fraud,” Crawford said. “State and provincial securities regulators provide detailed background information about those who sell securities or give investment advice, as well as about the products being offered. The more you are prepared, the better your chance of sidestepping a trap that can leave you in a financial hole for many years.”

Top 10 Investor Traps
The following products and practices deserve special scrutiny:

Products

• Exchange-Traded Funds (ETFs). While ETFs resemble mutual funds in many respects, some, such as leveraged and inverse ETFs, may contain hidden traps and complexities, and may consist of highly leveraged bundles of exotic financial instruments, including options and other derivatives. Given their potential for volatility, leveraged ETFs may not be suitable for most retail investors. These types of ETFs are primarily designed for short-term trading (such as day-trading), and not for buy-and-hold strategies.  Also be aware that some ETFs are thinly traded and may not always be liquid.

• Foreign Exchange Trading Schemes. Currency trading and foreign exchange (forex) trading schemes can be particularly harmful to unsuspecting investors. Trading in foreign currencies requires resources far beyond the capacity of most individual investors. Promoters profit by charging high commissions or selling investment strategies assuming that trades are actually made. In some instances, salesmen and promoters who claim to have complex algorithms or propriety software programs which allow them to beat the market are actually just running Ponzi schemes. Too often, state regulators have encountered situations where there are no trades; the money is simply stolen.

• Gold and Precious Metals. High gold prices have trapped some investors in gold bullion scams in which a seller offers to retain “purchased” gold in a “secure vault” and promises to sell the gold for the investor when it gains in value. In many instances the gold does not exist. Investors have also been harmed by promoters pitching investment pools in precious metal commodities and gold mines.

• Green Schemes. Investment opportunities tied to the development of new energy-efficient “green” technologies are increasingly popular with investors and scammers alike. Scammers also exploit headlines to cash in on unsuspecting investors, whether from investments related to the clean-up of the Gulf of Mexico oil spill or the rising national interest in environmental innovations tied to “clean” energy, such as wind energy, wave energy, carbon credits and other alternative energy financing.

• Oil & Gas Schemes. Regardless of the price at the pump, fraudulent energy promoters continue to capitalize both on interest in the commodity and on oil and gas as investment alternatives to the stock market. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors who cannot afford the risk. Securities investments offering profit participation in oil and gas ventures can be legitimate, but even when the underlying project is genuine, any revenues realized can be absorbed by high sales commissions paid to the promoter and dubious “expenses” skimmed off by the managing partner. Some promoters, many of whom have had past run-ins with regulators, have attempted to structure their “joint ventures” or “general partnerships” to avoid securities regulation and deprive investors of important protections.

Practices

• Affinity Fraud. Scam artists have found it lucrative to abuse membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Typical affinity groups include religious, ethnic, professional, educational, language, age and any other group with shared characteristics that allow investors to trust members of the group. Rather than trusting a person or company due to a common affiliation, investors should seek further information about the investment from an unbiased, independent source, and review both the promises and risks.

• Undisclosed Conflicts of Interest. When obtaining investment advice about securities, investors need to know that not all advice is given with their best interest at heart. Some salespeople can receive lucrative commissions when they sell a product that is risky or inappropriate for an investor, but don’t have to disclose that financial incentive. Investors should demand that anyone giving advice or recommendations disclose how they are compensated.

• Private or Special Deals. Some investors encounter investment opportunities or deals couched as “private” or only for “special” clients. While securities laws do offer businesses the opportunity to raise capital by selling securities to a relatively small number of investors in a non-public offering, these securities are not subject to the same review as others. Many state securities regulators have seen continued or increased abuse of fraudulent private offerings made under federal exemptions or not regulated at all. Although properly used by many legitimate issuers, private offerings have become an attractive option for con artists looking to steal money from investors by promoting the special or private nature of these schemes and by making false and misleading representations.

• “Off the Books” Deals. “Off the books” sales are an increasingly common threat to investors. Be cautious if your broker offers an investment on the side instead of one sold through his or her employer. These “off books” investments may not only be illegal, but they can also be especially risky without the oversight and supervision of the broker’s employer.

• Unsolicited Online Pitches. Promoters of fraudulent investment schemes are moving beyond e-mail and turning to social media and online communities, such as Facebook, Twitter, Craigslist and YouTube to solicit unsuspecting investors. Some may use these sites to spread misinformation to artificially inflate the value of stock before selling in a “pump and dump” scheme. Others may promise high-yield, tax-free returns from investments in offshore markets. Once the money is sent to another country and is in someone else’s control, investors may not be able to get it back. In many cases, these offers turn out to be Ponzi schemes. Investors should approach any unsolicited investment opportunity with suspicion.

Crawford cautioned investors to familiarize themselves with the warning signs of investment fraud and independently verify any investment opportunity as well as the background of the person and company offering the investment. “Investors should do business with licensed brokers and advisers and should report any suspicion of investment fraud to their state or provincial securities regulator,” she said. “One call can protect your financial security and might prevent others from becoming victims.”

Contact information for all state and provincial securities regulators is available on the NASAA website. Simply click the website icon below to view additional information.

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.
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