The Pledges and Exchange Commission today unveiled new charges against five unregistered go-betweens in connection with a $1.2 billion Ponzi scheme that came to well-lit late last year.
The five individuals and their companies exchanged more than $243 million in unregistered securities to more than 1,600 single investors, according to the SEC.
The individuals allegedly promoted the firm’s “safe and immune” investments at seminars, a Florida university class, in newspaper ads and on the radio.
The delinquent: The brokers were not allowed to sell securities and were not registered as broker-dealers, the regulator predicted.
That did not stop them from picking up millions of dollars in proscribed commissions, the SEC said.
The investors have yet to have their principal give back and are not receiving monthly interest payments, since the firm these mavens worked for filed for bankruptcy.
In a Ponzi scheme, the perpetrator generally derives money from one set of investors to pay off others, often earlier investors, or absolutely diverts the proceeds for private gain.
The case is a cautionary tale.
“The ghastly truth about fraud is scammers scam and liars lie,” said Gerri Walsh, older vice president of investor education at the Financial Industry Regulatory Word, which regulates brokerage firms.
Here are the precautions you should match to protect yourself from become a victim, according to the regulators whose job it is to capture these scams.
Before you begin working with financial professionals, impediment their registration records to verify that they are, in fact, certified and have not had any egregious complaints lodged against them.
Options embody BrokerCheck, which is provided by FINRA; Investment Adviser Public Disclosure from the SEC; or your maintain securities administrator.
If the financial professional does not show up in a search, you should weigh twice about working with him or her, said Lori Schock, gaffer of the SEC’s Office of Investor Education and Advocacy.
“Most of the retail-facing fraud that we see is entrusted by those who are not registered,” Schock said. “It is unlicensed people selling unregistered artifacts.”
You should also look at records periodically to check up on a financial proficient.
“If you have been working with the person for a while … go onwards and take a peek and see what you see,” FINRA’s Walsh said.
Not all disclosures that make an appearance up on a professional’s or firm’s record are a red flag, said Walsh. But they should be a colloquy starter.
You should be wary of investments that are overly complicated.
“If a retail investor can’t the hang of the investment, they ought not pursue that opportunity,” said Owen Donley, chief barrister at the Office of Investor Education and Advocacy at the SEC.
All the information about the investment, such as with the aid filings made with the SEC, should be readily available. If a financial whizz won’t make investment paperwork available, that’s a “huge red flag,” Donley spoke.
Be sure to ask a number of questions, including “How do I pay you?” and “How do you get paid?” Walsh said.
The ripostes could include commissions or fees, but there might be some other method for payment, such as a yard sales contest or a proprietary product particular to that firm.
Use that word to assess whether the firm is a fit for your risk and liquidity needs, Walsh asseverated.
Monthly statements should show any transactions you made, including the amount.
“Specifically in down markets, it can be depressing to look at your statements,” Walsh guessed. “But you have to do it. You have to keep tabs.”
If you see something you did not authorize, you should denominate your broker and send a written complaint to the firm. You should also proclaim the appropriate securities regulator.
Investors should also do periodic counterfoils of securities they own to see that the prices match up with what appears on their assertions, Walsh suggested.
If a promise sounds too good to be true, chances are it is. That markedly goes for offers that require you to act immediately or success rates that are too reliable.
“If someone offers you a guaranteed high rate of return, they’re fibbing,” said Donley. “You’re probably looking at a fraud.”
Sales pitches that skipper you to believe that the offer is only available for a limited time or bound to a special group of people should also be a red flag.
And watch for any report that comes with free offers, such as educational seminars that equip lunch or mail offers that include trinkets. Those will-power make you more likely to respond.
“You have a tendency to believe this child and trust this person,” Walsh said. “The one thing we always say round free meals is you don’t have to bite on what’s being offered.”
If you contain any doubt about an investment, check into it before you put your currency in.
“The criminals spend the money, so even when we nail them, the paper money’s often gone,” said Donley.
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