Wednesday’s Word: Boiler Room

By Ben Dell’Orto, Spring 2018 IAC Student Intern

In addition to inspiring a Hollywood movie, Boiler Rooms are a common scheme to pressure investors into purchasing an investment that most likely is not a good one for them. The scheme involves a large group of “salesmen” trying to attract as many investors as possible to the scam. The most common method is through cold calling, where the schemers use high-pressure sales tactics to encourage the potential investor on the other end of the phone call to take advantage of an investment that will yield “high returns” and “no risk” but is only available for a short time. FINRA notes that the caller will often attempt to explain the miracle investment by suggesting that it is founded in an emerging industry or will “play off recent events” to lend legitimacy to the lie. One recently-busted scam in England took advantage of the rising wine industry, and this blog reported on a recent FINRA report of scams increasing on this side of the pond.

While previously usually conducted over the phone, the SEC adds that boiler rooms now may use “emails, text messages, social media, and other means.” These methods lack the pressure created by a persuasive voice speaking directly over the phone, but can still be effective by suggesting that the time to buy is limited, or by pestering with frequent messages.

The most important thing to remember to avoid falling victim to a Boiler Room scheme is to




The fraudsters behind this kind of scheme are relying on a quick decision, so taking a moment to run a broker check and an internet search of the investment before buying will save you from taking a big loss.

Dangerous Clickbait: The SEC Warns Investors About Paid-to-Click Scams

By: Esmat Hanano, IAC Student Intern Spring 2018

At the tail-end of last year, the Securities and Exchange Commission (SEC) issued a warning to investors about Paid-To-Click (PTC) scams. PTC websites “…promise investors a share of the program’s profits in exchange for paying an upfront fee or buying products.” The PTC site might even promise the investor advertising space on its network of ads in addition to a share in the program’s profits. In this way PTC sites seem to offer the best way of making money on the internet—buy online “ad packs” then sit back and watch as your profits roll in! However, the SEC warns that these websites are being used to further Ponzi schemes. In fraudulent schemes, a new investor will place money in a PTC program which will then be sent to previous investors in the same program as their “profits.” Not all PTC sites are malicious, but investors thinking about buying into such programs must be wary of the promises these websites make. Continue reading

Investor Alert: Promissory Notes Don’t Offer Much Promise

Ben Dell’Orto, Spring 2018 IAC Student Intern

When the North American Securities Administrators Association (NASAA) polled state securities regulators on the “top five current investment practices, products or schemes” leading to a customer complaint or investigation, the results were overwhelming: 74% of those surveyed listed promissory notes among the top five.

So what is a promissory note? On the surface, the concept is simple; companies in need of capital reach out to investors to lend them some money with the promise of eventually returning the initial investment along with fixed interest payments. The length of time the company has to repay can vary from months to years.

Though this sounds like a simple process with potential for high returns, most of us are unlikely to get an offer to purchase legitimate promissory notes. The NASAA notes that “legitimate promissory notes are marketed and sold almost exclusively to sophisticated or corporate investors with the resources to research the companies issuing the notes and to determine whether the issuers have the capacity to pay the promised interest and principal.” This means that most offers the average investor receives for promissory notes are actually fraudulent.

While FINRA notes that fraudsters offering promissory notes most frequently target elderly investors with fixed income for their retirement savings, anyone is at risk. This brochure, produced by FINRA, the NASAA and others describes instances where a coffee company sold $4 million in notes to at least 100 investors and a veterinarian in Kansas sold $1.3 million in notes to friends and church members. In both situations, the investors lost everything. Last April, an insurance agent plead guilty to defrauding almost eighty of his clients out of $8.2 million by promising a 10 percent return to borrow against their life insurance plan.

The key to avoiding fraudulent promissory notes is the same as avoiding most scams: research. Use the SEC’s EDGAR search tool to make sure your promissory note is properly registered. Also avoid any notes which claim to be “guaranteed,” as nothing is.

Wednesday’s Word: Unit Investment Trust

By Esmat Hanano, Spring 2018 IAC Student Intern

The Financial Industry Regulatory Authority (FINRA) has released its annual Regulatory and Examination Priorities Letter. One of the biggest priorities for FINRA in 2018 is monitoring the use of Unit Investment Trusts, or UITs. What exactly is a UIT you may ask? Continue reading

Investor Advocacy Clinic Welcomes Back Eric Peters

Eric Peters decided to return to the Investor Advocacy Clinic for a second semester in spring 2018.  Peters returned to continue his creative investor education work and to provide legal advice to real investors who have been wronged by their broker. According to Peters,

“The Investor Advocacy Clinic is important because it helps real people solve problems from unsuitable advice.  I feel for my clients because this can happen to anyone — and it has happened to my family.  I came back to the clinic to help new clients and finish the work I started with clients whose matters are not yet resolved.”

GSU Students: Try a Clinic to Practice Being a Lawyer

Click here to learn why Michael McLaughlin, JD ’14, now an attorney at Jones Day in Atlanta, believes law students should join a clinic.

McLaughlin says, “Try a clinic to practice being a lawyer.  I would participate again in the Investor Advocacy Clinic because it is such a unique law school experience. Unlike a typical law school class where work is assigned individually, you work side by side with your classmates and the Clinic’s Director to accomplish your tasks.  Unlike a typical law school class where education occurs solely in the classroom, you personally interact with members of the community by providing investor representation and education.  And unlike a typical law school class where you feel like a student, the Clinic provides an atmosphere for you to feel like a lawyer.”

Learn more about the three Georgia State Law in-house clinics, the Health Law Partnership Clinic (HeLP), Investor Advocacy Clinic, and Tax Clinic, including how to apply during these events:

  • Monday, February 12 12:00-1:00 pm: Preparing to Practice Panel: HeLP, Investor Advocacy and Tax Clinics, Room 241.  Meet with new and experienced lawyers who will share how working in the HeLP Legal Services Clinic, the Investor Advocacy Clinic, and the Philip C. Cook Low-Income Taxpayer Clinic can help students make the move from student to successful attorney and obtain meaningful employment.  Food will be served.
  • Wednesday, February 14, 12:00-1:00 pm and 5:00 – 6:00 pm: Experiential Course Fair, law school atrium.  Meet with representatives of College of Law experiential courses, including the in house clinics, to learn more about opportunities at the College of Law.
  • Wednesday, February 21 5:00-6:00 pm: Preparing to Practice Panel: HeLP, Investor Advocacy and Tax Clinics, Room 246.  Meet with new and experienced lawyers who will share how working in the HeLP Legal Services Clinic, the Investor Advocacy Clinic, and the Philip C. Cook Low-Income Taxpayer Clinic can help students make the move from student to successful attorney and obtain meaningful employment.  Food will be served.

IAC Comments on FINRA Regulatory Notice Concerning Expungements

The Investor Advocacy Clinic evaluates and comments on regulatory matters and proposed rules in order to provide a voice for small retail investors.  As part of that mission, on Monday, February 5, 2018, the clinic submitted a comment letter on FINRA Regulatory Notice 17-42, a proposal making changes to the expungement process.  Expungement is the process by which broker dealers and associated persons are able to remove items, like customer complaints, from their CRD, which provides the information for BrokerCheck.

The Investor Advocacy Clinic’s comment, available in full here, expressed support for most of the suggested changes as they encouraged investor participation in the expungement process while simultaneously ensuring that only brokers actually entitled to expungement obtain that extraordinary relief.  We frequently recommend that investors consult BrokerCheck before investing, and the clinic believes that maintaining its accuracy and reliability is of the utmost importance.  We appreciate FINRA’s invitation to comment on such important matters.  Spring 2018 students Ben Dell’Orto, Esmat Hanano and Alisa Radut were the primary authors of the comment.