Beware Penny Stock Scams Involving Hyping Dormant Shell Companies

By Patricia Uceda, Fall 2014 Graduate Research Assistant

questionsThe SEC is warning investors that some penny stocks that are being aggressively promoted are actually stocks of dormant companies that currently have no business operations and are essentially empty shells. Penny stocks are highly susceptible to market manipulation through the use of pump-and-dump schemes.

As we’ve told you before, pump-and-dump schemes involve a fraudster buying a large amount of low-priced penny stocks and then using aggressive advertising techniques to pump up the price of the stock. Once the stock price is artificially inflated, the fraudster will then dump their shares, causing the price to fall and leaving investors with worthless shares of stock. 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

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.

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’s publication Money & Mobility: For Military Personnel and Families.


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.


FINRA Warns Firms about Overreaching Confidentiality Provisions in Settlement Agreements

By Patricia Uceda, Fall 2014 Graduate Research Assistant

confFINRA has issued a regulatory notice reminding brokerage firms that it is a violation of FINRA Rule 2010 to include confidentiality provisions in settlement agreements or any other documents that prohibit or restrict a customer from communicating the SEC, FINRA, or any federal or state regulatory authority regarding a possible securities law violation. Under FINRA Rule 2010, firms are required to observe “high standards of commercial honor and just and equitable principles of trade” in the conduct of their business.

As part of settlement agreements, some firms had required customers to sign confidentiality stipulations restricting them from disclosing to securities regulators the settlement terms and underlying facts of the dispute. Similarly, some investors had reported that during the arbitration discovery process, they had been asked to enter into stipulations that would prohibit them from using the documents outside of the proceeding. Such practices could, for example, prohibit investors from providing important information to regulators that would permit them to stop brokers who were engaged in questionable or illegal conduct. Continue reading

FINRA Responds to PIABA’s Arbitrator Report

By Patricia Uceda, Fall 2014 Graduate Research Assistant

judgeAs we noted earlier this week, PIABA recently issued a report arguing that the FINRA arbitrator pool lacked diversity and did not effectively communicate potential biases to investors. FINRA has issued a statement in response, disagreeing with PIABA’s report. Continue reading