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NFA Investor Newsletter

April 11, 2013


In this Issue: Money Smart Week Tax-related Fraud Central Florida Investor Fraud Summit Selecting Investment Services Provider Consumer Sentinel Network Data Book Recent Enforcement Actions


NFA teams to co-sponsor investor education seminars during Money Smart Week

Money Smart Week

It's that time of year again. Now in its seventh year of participation, NFA will present a series of seminars during Money Smart Week, a nationwide public awareness campaign designed to help consumers better manage their personal finances.

This year, NFA has joined with the Commodity Futures Trading Commission (CFTC), AARP Illinois and the Chicago Department of Family & Support Services to educate investors and provide community leaders with the tools they need to help protect themselves and others from investment fraud. During the seminar, "Avoiding Fraud is Your Best Money Strategy," NFA, AARP and the CFTC will provide attendees with advice on how to identify the warning signs and avoid investment fraud.

The seminar will be presented two days during Money Smart Week. The first seminar will be on Thursday, April 25 from 11:30 a.m. to 1:00 p.m. at the Renaissance Court in the Chicago Cultural Center, which is located at 78 E. Washington St., in Chicago, Ill. On Friday, April 26, the partners will present a reprise of the seminar from 10:00 a.m. to 11:00 a.m. at the Southeast (Atlas) Senior Center, located at 1767 E. 79th St., also in Chicago, Ill.

These seminars are just part of a series of free classes, seminars and activities promoting financial education that will take place during Money Smart Week Chicago, which runs from April 20 to 27 and is coordinated by the Federal Reserve Bank of Chicago.

Additionally, on Wednesday, April 24, NFA will join other regulatory and enforcement agencies at a Financial Regulators Fair at the State of Illinois Building, Thompson Center. Representatives from 12 agencies, including the CFTC, Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC) will distribute information on financial protection, banking, credit and investing. The event will run from 10:00 a.m. to 2:00 p.m.

Anyone who would like to attend a Money Smart Week seminar should pre-register by calling (312) 781-1454 or email avorro@nfa.futures.org.

For additional investor education resources, check out the following information:




Beware tax time treachery

Not only is April 15 circled and surrounded by devil horns and squiggly black marks on many people's calendars due to the Internal Revenue Service's (IRS) annual tax filing deadline, but it's also feeding frenzy day for fraudsters. Because of this, the National Consumer League is warning consumers to beware of predatory or fraudulent tax-related offers.

Tax-related Identity Theft

Identity thieves have become increasingly brash over the years and can profit by filing fraudulent tax returns. The Federal Trade Commission found that tax or wage-related fraud is the fastest-growing form of identity theft since 2009, with the IRS' Taxpayer Advocate Service receiving more than 34,000 identity theft cases in 2011. Compounding the problem is that this type of identity theft often goes unnoticed by consumers until they receive a note from their accountant or the IRS informing them that their identity was stolen.

The IRS recommends the following tips to protect your identity:

  • Don't carry your Social Security card or other information with your Social Security number (SSN) with you
  • Only give businesses your SSN if it's absolutely required
  • Check your credit report every 12 months and challenge unusual activity
  • Secure all personal information in your home
  • Protect your personal computer with firewalls, anti-virus software, security patches and regularly change your passwords
  • Don't give out personal information over the phone, mail or the Internet unless you know the recipient

Tax relief scams

For the many consumers who owe back taxes, the temptation can be strong to work with someone who claims to be able to reduce or eliminate their payment to the IRS for an upfront fee. Similar scams tout the ability to settle debts to the IRS for a pittance.

The FTC suggests that consumers who are having trouble paying taxes should contact the IRS or their state comptroller instead of paying dubious tax-relief firms. The Taxpayer Advocate Service provides free help to consumers having trouble paying their federal taxes, while the National Association of State Auditors, Comptrollers and Treasurers can help consumers with state tax problems.

Tax preparer fraud

Consumers also should proceed with healthy skepticism when turning to tax-preparation firms or personal accountants for help with filing their taxes. While most companies and individuals are legitimate, there are still bad actors out there who will collect sizable upfront fees and then disappear. The IRS says that consumers should beware of tax preparation firms that claim they can obtain larger refunds than their competitors, base their fees on a percentage of the refund amount, ask consumers to sign a blank tax form or refuse to provide a preparer tax identification number or copies of the tax return.

These fraudulent tax preparers often prey on areas with high concentrations of immigrants or low-income consumers.



Central Florida Investor Fraud Summit

NFA will participate in the Central Florida Investor Fraud Summit on May 15 at Florida A&M University College of Law in Orlando. The Summit will feature speakers from numerous federal and state law enforcement and regulatory authorities, and will cover a range of topics including common fraud schemes, to reporting fraud, investment schemes and victim rights, among others.

Larry Dyekman, NFA's Director of Communications and Education, is slated to speak on a panel with members of other regulatory authorities about the futures market, how to use our Background Affiliation Status Information Center and examples of the types of fraud we've uncovered.

The Summit is open to the public, free to attend and offers a complimentary breakfast. To register, call (407) 648-7569.

How to select an investment services provider

Choosing the right services provider is of critical importance to investors. Given the range of services provided by different types of providers, the disparity of fees charged by each type, the various state and federal regulatory requirements and the divergent legal obligations to their customers, there is much an investor should know ahead of making a decision as to which type they should engage. To this end, the CFA Institute has developed a guide to help distinguish between the different types of advisers.

According to the CFA, there are three main types of investment service providers:

  1. Brokers. A broker executes the purchase or sale of securities at their clients' direction and can provide investors with information, research, and, in certain cases, investment advice and recommendations. Brokers are regulated by the Securities and Exchange Commission (SEC) and state security regulators. Additionally, similar to NFA's role in the futures industry, brokers must register with FINRA, the securities industry's independent self-regulatory organization.
  2. Investment advisers. The role of an adviser is to provide ongoing management of investments based on the client's objectives. In most instances, the client gives the adviser authority to make investment decisions on the client's behalf. The adviser is regulated either by the SEC or state security regulators, depending on the amount of assets under management.
  3. Financial planners. Investors can engage financial planners to develop or implement comprehensive financial plans in regard to insurance needs, estate and tax planning and retirement and college planning. Financial planners are not separately regulated as planners; instead, their regulation depends on the type of services they provide.

CFA also highlights another important distinction among service providers–whether they're subject to a fiduciary duty, which is an obligation to put the customer's interests ahead of theirs, and their employer's, at all times. A fiduciary must provide advice and recommend investments that he views as being the best for you, and must disclose any conflicts of interest. In the U.S., investment advisers are held to a fiduciary standard.

To determine the proper provider, CFA recommends investors decide based on what services they desire:

  • If you want assistance with buying and selling investment products, a broker may be the right option.
  • If you want someone to provide ongoing management and oversight of your investments, an investment adviser may be most appropriate.
  • If you want to develop a long-term, comprehensive financial plan, working with a financial planner or wealth manager is likely the proper person.



Vigilance required: Fraud and identity theft are on the rise

In this rapidly growing information age, it should come as little shock that the number of consumer fraud and identity theft complaints continue to grow. Stories come out seemingly every week detailing how hackers absconded with customer data from some unfortunate company's computers, or a person was duped into turning over their personal identification information.

Given this very real danger, the Consumer Sentinel Network (CSN), an online database of consumer complaints, recently issued a report on consumer complaints made to law enforcement officials. CSN's Data Book, distributed annually by the Federal Trade Commission, calls out all complaints that were made between January and December 2012 in 30 different category types ranging from the aforementioned fraud and identity theft to credit reports, debt collection, mortgages and lending, among others.

The 2012 Data Book reports that CSN received more than 2 million consumer complaints in 2012–52 percent were fraud complaints, 18 percent were identity theft and the remaining 30 percent came from the remaining 28 complaint categories.

Since 2010, the number of total complaints has risen from 1,467,255 in 2010 to 1,895,012 in 2011 and 2,061,495 in 2012. But while the number of overall fraud complaints is way up, the breakdown of types of fraud has remained largely static-fraud and identity theft still average about 54 percent and 17 percent, respectively, of the total claims per year.

CSN highlighted the following points in relation to fraud in 2012:

  • Consumers reported paying more than $1.4 billion in fraud complaints in 2012; the median amount paid was $535. Fifty-nine percent of the consumers who reported a fraud-related complaint also reported an amount paid.
  • Fifty-seven percent of all fraud-related complaints reported the method of initial contact. Of those complaints, 38 percent said email, while another 34 percent said telephone. Only 9 percent of those consumers reported mail as the initial point of contact.
  • Florida is the state with the highest per capita rate of reported fraud and other types of complaints, followed by Georgia and Maryland.

The Data Book also highlighted the following statistics in relation to identity theft:

  • Government documents/benefits fraud (46 percent) was the most common form of reported identity theft, followed by credit card fraud (13 percent), phone or utilities fraud (10 percent), and bank fraud (6 percent).
  • Complaints about government documents/benefits fraud increased 27 percentage points since 2010; tax or wage-related fraud accounted for the growth in this area, with 43.4 percent of identity theft victims reporting this problem in 2012. Employment-related fraud complaints, however, have declined 6 percentage points since 2010.
  • Forty-two percent of identity theft complainants reported whether they contacted law enforcement. Of those victims, 68 percent notified a police department. Fifty-four percent of these indicated a report was taken.
  • Florida is the state with the highest per capita rate of reported identity theft complaints, followed by Georgia and California.

Recent Enforcement Actions

In the first quarter of 2013, NFA's Business Conduct Committee issued Decisions, Member Responsibility Actions, Final Orders in Registration Cases and Complaints against the following NFA Member firms and individuals. Click on the name for more detailed information.

Decisions in Disciplinary Cases
Richard D. Dank
First Quadrant LP
KS Global Strategies Inc.
Kent Charles Roberts II
Khaled Salama

Member Responsibility Actions
James A. Shepherd Inc.
Prodigy Asset Management LLC
Ezekiel Abdel Rahman
James A. Shepherd

Final Orders in Registration Cases
Anthony Almeida
Jennifer J. James
Michael B. Jessop
Alex J. Matturro
Vincent Capital Group LLC

Complaints
First Quadrant LP
Global Arena Commodities Corp.
Mackenzie Wallace & Co. Limited
John A. Piazza
Kent Charles Roberts II


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