Professional Financial Adviser’s Pitch Goes Horribly Wrong to Professional Athletes

By Qudsia Shafiq, Fall 2017 IAC Student Intern

What can happen when a financial adviser meets deep-pocketed athletes who refuse to invest in his movie venture proposals? For one financial adviser, this meant ignoring the pros that told him no.

On May 6, 2016, the U.S. Securities and Exchange Commission (SEC) filed a complaint against Louis Martin Blazer III for allegedly repeatedly taking money from his clients under the guise of raising money for two film projects: “Mafia the Movie” and “Sibling.” The SEC charged Blazer, a Pennsylvania-based financial adviser with defrauding pro athletes and lying to SEC Examiners. The high-end, concierge firm allegedly took nearly $2.35 million from five different clients without their consent, all to invest in the two movie projects. Continue reading

Duck from Deception: Find the Fake News Before it Finds Your Wallet

By Qudsia Shafiq, Fall 2017 IAC Student Intern

Are you smarter than the ads you see? While you may think you can outsmart any ad, have you considered the possibility that you may not know an ad when you see one?

Think about where you turn to for investment advice: Is it from individuals (such as your financial adviser, friends, and relatives), traditional news sources (like television shows, radio stations, newspapers or magazines), or is it from the internet on your personal computer, tablet or smartphone? For most individuals, it’s usually a combination of these sources. But one thing these categories have in common is that they are platforms for product placement and advertisements. Continue reading

Legal News: China’s Crypto Crackdown

By Robert Noens, Fall 2017 IAC Student Intern

A September 5, 2017, Law360 Article by Tom Zanki brought attention to a growing problem with cryptocurrencies – the online currencies/investments that appear to be popping up all over the place after the notable success of Bitcoin. As Zanki’s article points out, the money going into cryptocurrencies has grown substantially over recent months. In the first quarter of 2016, Initial Coin Offerings, or “ICOs,” raised $40 million. By the end of the second quarter in 2017, that number increased to $900 million. The issue here, however, is not getting your money into these cryptocurrency investments, the problem is getting your money back out. As readers of my last article – ICO(s)! Initial Coin Offering or Investor Conning Organization? – are well aware, this newly developed investment frontier of cryptocurrencies is plagued by fraudsters and scams. That is why, as of September 5, 2017, China has banned all ICOs for the foreseeable future. Additionally, the Chinese government informed those that have already made ICOs that they should begin to make arrangements to give their raised capital back to investors! China is not the only government entity cracking down on cryptocurrencies either.  Hong Kong decided that they will begin to regulate ICOs under their securities laws. Korea announced that they would also be strengthening their regulations over cryptocurrencies. Additionally, Canada, Singapore, and the SEC recently weighed in with comments regarding their regulation of cryptocurrencies. What these new regulation will be and where they will leave this new cyber industry, I do not know. One thing is relatively clear, however, there is a growing trend towards the regulation of ICOs and cryptocurrencies, and that trend does not appear as though it will be slowing down anytime soon.

Legal News – Affinity Fraud: Wolves in Sheep’s Clothing

By Abigail Warren, Fall 2017 IAC Student Intern

Earlier this year, the SEC  announced fraud charges against a Michigan pastor.  The pastor, and owner of a real estate company, allegedly targeted members of his congregation, along with laid off auto workers, promising to roll their money into IRAs and invest in his company.  The pastor allegedly collected 6.7 million from over 80 investors, even though he was not registered to sell securities, guaranteeing high returns and inflating the value of his real estate company. The SEC says he allegedly invested none of the 6.7 million, scamming groups in his community who entrusted their money to him.

Unfortunately, these allegations sound like affinity fraud, an all too common issue.   In affinity fraud, fraudsters prey on groups, such as religious organizations, the elderly, immigrants, retirees, and ethnic groups.  Often, they are a group member or they use a trusted member to recruit potential investors, the scam even unbeknownst to the friend “spreading the word.”  Affinity fraud is also gaining online presence, with fraudsters using social media sites to target online groups.  According to the SEC, most affinity fraud surfaces as Ponzi or pyramid schemes, soliciting fake investments for personal use.  Due to the nature of these “affinity” scams, the damaged often investors opt out of reporting the fraudster, preferring to handle it within the group.

Among affinity fraud’s characteristics, the SEC warns investors to look for “red flags” such as “spectacular or guaranteed returns.”  For tips on how to avoid affinity fraud visit the SEC and FINRA.

If you suspect affinity fraud contact the SEC or your state regulator.

Equifax Breach: A Lifelong Threat

By Alisa Radut, Fall 2017 IAC Student Intern

I live in Atlanta, the capital of Equifax.  In light of the recent data breach, I have growing concerns about the safety of my personal information and identity, as might you.  Fortunately, our friends at the Federal Trade Commission have provided a useful and practical blog with advice on what to do in the event your information is compromised, as was that of 143 million U.S. consumers, as well as people in the Canada and the UK (that’s equivalent to almost half of the American population!).  As one of the three major credit reporting agencies, Equifax exposed millions of Americans’ social security numbers, birthdates, and addresses to the cyberattack. If you are one of the millions of people affected by the breach, or are just concerned about the safety of your personal information, the FTC recommends some steps you should take to help prevent the misuse of your sensitive data.  First, start by finding out if your information was compromised by visiting the Equifax website.  Next, obtain free credit reports from all three reporting agencies (Equifax, Transunion, and Experian), and report any activity you do not recognize.  It is important you continue to monitor your existing accounts closely and frequently. Increasingly worrisome is the rate and frequency at which big companies are experiencing these types of data breaches, which could create life-long identity theft threats.  A security analyst on USA Today advises consumers to monitor their financial activity weekly, as data obtained is likely to be used for years.  Also troubling is the fact that major executives of Equifax sold their stock a month before the press release reporting the breach.

Investor Alert: ICO(s)! Initial Coin Offering or Investor Conning Organization?

By Robert Noens, Fall 2017 IAC Student Intern

Recently FINRA published a new investment alert regarding Initial Coin Offerings or “ICO”s. For those of you that do not know, as was the case for me prior to reading this newest investor alert, an ICO is when a company launches or offers a new virtual coin or cryptocurrency. Without getting too technical, a cryptocurrency is simply an online currency. The most well-known cryptocurrency at the moment is undoubtedly bitcoin. When bitcoin first started, the currency’s value was relatively low. Over the past few years, however, bitcoin’s value has soared. At one point, bitcoins’ value reached heights of nearly $3,000.00 per coin. Scammers were quick to notice.

Today, some startup companies, in attempt to make a quick buck, are trying to replicate the buzz and growth demonstrated by bitcoin. Some companies may be putting in a good faith effort. Some companies may even demonstrate a reasonable degree of success, but, like most things, someone eventually ruins the fun for everyone. That is where this FINRA investor alert comes in. There are a number of companies “launching” their own cryptocurrencies, creating buzz around the new cryptocurrency via phone calls and social media, driving the virtual currency prices up with unsuspecting investors’ real-world money, and then dumping or selling most or all of their virtual coins. The result of these actions ultimately leaves investors with a worthless pile of virtual coins a real-world empty wallet. In other words, they run off with your money.

This warning is not to deter everyone from cryptocurrencies. Some people have made incredible returns off of investing in cryptocurrencies. The market for cryptocurrencies, however, is extremely risky, unregulated, and full of fraudsters ready to capitalize on those trying to break into this newly created cyber, investment frontier. For these reasons, FINRA has published a list of precautions that one should take prior to investing in any cryptocurrency – that list can be found by clicking here.

Additionally, it should also be mentioned that even when equipped with FINRA’s list of precautions, the universe of cryptocurrencies is a highly risky one. Cryptocurrencies are inherently complex and quality information is hard to find. Companies and websites offering information, even the larger and more well-known ones, may hold a strong bias towards their own currency, especially if they own a large amount of their own virtual coins. Accordingly, be vigilant, do your research, read FINRAs investor alerts, and, as always, be wary of any solicitations.

Seniors at Risk

By Alisa Radut, Fall 2017 IAC Student Intern

The North American Securities Administrators Association (NASAA) warns seniors about the risk from financial fraud.  As the frontline security regulators, members of NASAA want to send a clear message that more needs to be done to put a stop to financial fraud against senior citizens.  To raise awareness and urgency needed to prevent senior financial exploitation, NASAA conducted a survey among state securities regulators, “who are the investment industry’s local cops on the beat,” from all 50 states.  The survey indicated that despite an increased awareness of senior financial fraud among, more steps need to be taken in addressing the problem.  According to the survey, over 50% of financial agencies indicated they implement investor education and senior outreach as part of the action against senior fraud.  As part of the effort to raise awareness, approximately the same percentage of agencies have adopted a version of the NASAA Model Act to protect vulnerable adults from financial exploitation.  Since the enactment of the legislation, a significant number of agencies have received reports of suspected senior fraud.  Furthermore, according to the survey, over 75% of the firms questioned have been able to prevent fraud by stopping distribution of funds, pursuant to these laws.  The survey highlights the need for prevention and detection resources, as most cases of fraud are not discovered until it is too late.

Because fraud is not decreasing, broker-dealers and advisers should do more to help counteract the increased instances of senior fraud.  Another survey NASAA recently released revealed that most senior abuse cases involved customers between the ages of 81 and 90.  In fact, NASAA confirmed that the age group most vulnerable to financial fraud is 70 and older.  The good news is that information is available to assist in addressing the problem.  For example, as part of the Model Act, NASAA provides advice on what steps the industry, caregivers, investors, and policy makers can take to help prevent senior investor fraud.  Similarly, as indicated by the survey, about 90% of financial firms have some sort of internal process for addressing fraud issues among senior citizens.