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

Be Sure to Dredge when you Invest in a Hedge

By: Kori Eskridge, Fall 2014 Intern

hedgeWhen you were little, it was easy for things like baseballs and toys to get lost in the hedges. Hedges are dense, shadowy and can make it hard to find missing items. Much like the hedges you might use for landscaping, hedge funds have some similar characteristics.  It can be easy for investor information to be hidden in the fine print or the flashy details of great past performance. Continue reading

NASAA Warns Investors about Ebola-Related Investment Scams

By Patricia Uceda, Fall 2014 Graduate Research Assistant

fraudIn addition to warnings given by the FTC about Ebola-related charity scams, NASAA has also issued an alert warning investors about opportunistic investment schemes related to Ebola. NASAA states that, based on its many years of experience, it is during periods of uncertainty such as this one that fraudsters usually make their move and target unwary investors. Continue reading

Ebola-Related Charity Scams and How to Guard Against Them

By Patricia Uceda, Fall 2014 Graduate Research Assistant

charityAs Ebola fears run rampant in America, it is unfortunate that some fraudsters have viewed this as an opportunity to make a quick buck by scamming consumers. Earlier this year, Ryan Corbin advised you to avoid Ebola stock scams.  Now, several Ebola-related charity scams have popped up, claiming to have the newest vaccine or drug and urging consumers to donate as soon as possible so that more can be developed.

The FTC and FDA are informing consumers that there are currently no FDA-approved vaccines or drugs to prevent or treat Ebola, and that if you’ve seen companies claiming to have such a vaccine or drug, you should report it to the FTC.

If you want to make a charitable donation in support of the search for a cure to Ebola, here are some tips from the FTC to ensure that you are not scammed: 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

Investor Advocacy Clinic Comments on FINRA Proposed Rule Change 2014-028

By: Ryan Corbin , 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: SR-FINRA-2014-028

FINRA recently proposed SR-FINRA-2014-028, which would “refine and reorganize the definitions of ‘non-public arbitrator’ and ‘public arbitrator.’” Individuals affiliated with the financial industry are typically considered “non-public arbitrators” and individuals unaffiliated with the financial industry are typically considered “public arbitrators.”  The new rule would provide that persons who worked in the financial industry for any duration during their careers would always be classified as non-public arbitrators.  The change would also provide that persons who represent investors or the financial industry as a significant part of their business would also be classified as non-public arbitrators, but could become public arbitrators after a cooling-off period.

The Clinic’s Comment

On November 6, 2014, the clinic submitted a comment letter expressing its opposition to this proposed rule change.  The proposed rule would actually serve to diminish the availability of public arbitrators and remove qualified arbitrators with no ties to the industry from the pool of available arbitrators.  The proposed rule also does not achieve its goal of broadening the definition of “non-public arbitrators.”  This is of significant importance to small investors since they may arbitrate their claims before an all-public panel.  The proposed change will drastically decrease the amount of public arbitrators available to hear these types of disputes.

The clinic recommended that the definition of non-public arbitrators include anyone who has ties, whether current or former, to the financial industry including individuals associated with hedge funds, mutual funds, and non-traded REITS. It is essential that the investing public feel that they have a fair and unbiased tribunal in which to arbitrate their claims.  The clinic further recommended that claimants lawyers and other professionals serving the investing public not be classified as non-public.

The primary student author of the comment letter, Kori Eskridge, was assisted by student interns Ryan Corbin and Kristina Ludwig.