Social Consensus: Red Flag of Fraud

By Patricia Uceda, Spring 2015 Graduate Research Assistant



In order to help investors better recognize the red flags of investment fraud and avoid becoming victims, FINRA has released another short video dealing with a common red flag of fraud: social consensus. You can watch it here.

The social consensus tactic works by preying on your ability to be influenced by others. A fraudster will try to make you believe that other people you know have already invested in the product. Often this other person will be someone well-known and financially savvy, luring the investor into a false sense of security. Or it could be someone very similar to you, in the same position as you, such as friends or family. This can also create a false sense of security, as the investor may believe that they are missing out if they don’t also invest.

It’s important to keep in mind that just because it may seem like everyone is doing something, doesn’t mean you have to join in. Everyone’s situation is different, and the fact that the fraudster is trying to influence your decision with this type of information is a huge red flag of fraud.

Understanding these common fraud tactics can help you avoid becoming a victim. Visit for more tools and resources on fighting investment fraud.

SEC’s Operation Shell-Expel Suspends Trading in 128 Dormant Shell Companies

By Patricia Uceda, Spring 2015 Graduate Research Assistant







Dormant shell companies are often used to implement investment fraud schemes such as pump-and-dump schemes. They are prime targets because of their low share price and low visibility, making them highly susceptible to market manipulation.

Recently the SEC suspended trading in 128 inactive penny stock companies as a preventive measure to ensure that they don’t become a source for pump-and-dump schemes. The dormant shell companies were located in 24 states and Canada. These suspensions are the latest in the SEC’s microcap fraud fighting initiative. Microcap fraud is essentially fraud involving penny stock companies, or companies with low (“micro”) capitalizations.

Operation Shell-Expel, the SEC’s microcap fraud fighting initiative, is an aggressive plan to clean out dormant stocks in shell companies that may be targeted by fraudsters. It was started in 2012 and is intended to stop fraud before it begins, hopefully saving investors from being victims of investment scams. The SEC Enforcement Division’s Office of Market Intelligence uses computers and data mining to scour the marketplace and identify dormant companies ripe for abuse.

Since it began, Operation Shell-Expel has resulted in trading suspensions of more than 800 microcap stocks, or 8% of the market. If an inactive company is suspended, its stock cannot be relisted unless they provide updated financial information to prove they are actually operational. If they do not, the dormant shell company remains suspended and is rendered worthless to any investment scam artists.

FTC National Do Not Call Registry: How Does It Work?

By Patricia Uceda, Spring 2015 Graduate Research Assistant






Phishing calls are a huge problem for consumers today. Phishing involves using seemingly official communications to obtain confidential information from individuals. Traditionally this was done through the use of spam emails. However, in recent years phishers have turned to the telephone, which many people mistakenly believe are not as susceptible to scams. Continue reading

FTC Sends $2.4 Million in Refunds to Consumers Harmed by Premier Precious Metals Scheme

By Patricia Uceda, Spring 2015 Graduate Research Assistant








As part of the FTC’s ongoing efforts to stop scammers who target senior citizens, last year the FTC permanently banned a bogus precious metals investment scheme from selling any more investment opportunities. The company was called Premier Precious Metals, Inc., and it allegedly conned consumers into buying precious metals on credit without disclosing significant risks. Continue reading

Update: SEC Approves Proposed Rule Change Regarding Definition of Public and Non-Public Arbitrators

By Patricia Uceda, Spring 2015 Graduate Research Assistant

As you may recall, last year FINRA filed a proposed rule change (SR-FINRA-2014-028) to amend the definitions of “non-public” arbitrator and “public arbitrator” under Rules 12100 and 13100 of the Customer and Industry Codes.

The amendment proposed that persons who worked in the financial industry at any point in their careers would always be classified as non-public arbitrators as would persons who assist parties in certain investment disputes for 20% or more of their professional time (though they could become public arbitrators after a cooling-off period of five years). This latter category would move attorneys who represent investors in securities arbitration matters from the public arbitrator pool. Continue reading

SEC to Military: What We Do and How We Can Help

By Patricia Uceda, Spring 2015 Graduate Research Assistant







In honor of Military Saves Week last month, which strives to make service members and their families aware of the power of savings and setting financial goals for the future, the SEC recently conducted a seminar on SEC Investor Education and Advocacy for military service men and women at Ft. Hood educating them on what the SEC does and how they can help. Continue reading

FINRA 2015 Regulatory and Examination Priorities

By Patricia Uceda, Spring 2015 Graduate Research Assistant



In order to expand upon their Regulatory and Examination Priorities letter for 2015, FINRA recently released a short 14 minute video featuring Dan Sibears, FINRA’s executive Vice President of Regulatory Operations. This video is particularly useful for broker-dealer firms and investment advisers, as it provides more detail on what FINRA will be looking for and expecting this year. Watch it here.  To read more about FINRA’s regulatory and examination priorities for 2015, check out our earlier post here.