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NFA Investor Newsletter

Apr. 17 2015
In this Issue:
NFA teams to co-sponsor investor education seminar during Money Smart Week Non-traditional costs of fraud Protect your online brokerage account from fraud Fraudsters turning to prepaid cards 6 Internet investment frauds to watch for Recent enforcement actions


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

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

This year, NFA has joined with AARP Illinois and the Chicago Department of Family & Support Services to educate and provide the public with the tools they need to help protect themselves and others from identity theft and investment fraud. During the seminar, "Avoiding Fraud is Your Best Money Strategy," NFA and AARP will provide attendees with advice on how to identify the warning signs and avoid identity theft and investment fraud.

The seminar will be presented on Thursday, April 23 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.

Anyone who would like to attend the seminar should pre-register by calling (312) 781-7485 or email mmcfarlin@nfa.futures.org.

Additionally, on Wednesday, April 22, NFA will join other regulatory and enforcement agencies at a Financial Regulators Fair at the State of Illinois Building, Thompson Center. Representatives from 10 agencies, including 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.

These events are a 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 18 to 25 and is coordinated by the Federal Reserve Bank of Chicago. For more information about the week's entire events, visit the Money Smart Week website.

Non-traditional costs of fraud

Being the victim of a fraud certainly can take its toll on a person, but often the damage done is more than just financial. There often are non-traditional costs that can haunt you even after the financial damage is repaired.

The FINRA Investor Education Foundation recently commissioned a study to explore the non-traditional costs of financial and investment fraud, which included indirect financial costs and non-financial costs. The study focused on frauds in which the victim played an active role, and consisted of a survey to 600 self-reported victims of fraud.

Every year, more than $50 billion is lost to fraud, but that isn't the whole story. Looking first at other financial consequences, nearly half of the respondents reported some type of indirect financial cost. Twenty-five percent of respondents reported paying late fees as a result of the fraud and 23 percent reported paying fees for bounced checks. Worst of all, nine percent of respondents reported filing bankruptcy as a result. Among those who experienced indirect financial costs, 29 percent estimated the total cost to be more than $1,000.

Beyond the financial cost of fraud, there also is an emotional side that often is not talked about. Nearly two-thirds of victims reported experiencing at least one non-financial cost of fraud to a serious degree, including severe stress (50 percent), anxiety (44 percent), difficulty sleeping (38 percent) or depression (35 percent). Victims also tend to place a good deal of responsibility on themselves for the incident, with just under half (47 percent) blaming themselves and 61 percent feeling they were defrauded because they were too trusting.

When it comes to fighting fraud, an ounce of prevention is worth many pounds of cure, and the best prevention is knowledge. The best thing consumers can do to protect themselves is stay informed about the latest scam trends and what warning signs to watch for.

Protect your online brokerage account from fraud

As with all web-based accounts, investors should take precautions to help ensure that their online brokerage accounts remain secure. These five online security tips, as provided by the Securities and Exchange Commission, can help.

Pick a strong password, keep it secure and change it regularly. A strong password is one that is not easy to guess and generally uses eight or more characters that include symbols, numbers, and both capital and lowercase letters. This is your first line of defense, so do not use passwords based on common words, phrases, or personal information such as names or birthdays. Keep your password in a safe place and out of plain sight. Finally, change your password on a regular basis or anytime you suspect it might be compromised.

Use two-step verification, if available. Your brokerage firm already may offer or require a two-step verification process for access to your online account. With a two-step process, each time you attempt to log into your account, your brokerage sends a unique code to an email address or phone number you already have on file. Before you can gain access to your account, you must enter this code and your password.

Use different passwords for different online accounts. Avoid using the same password for different online accounts, particularly financial ones. Using a single password for all of your different online financial accounts is akin to using a single key for your house, car and mailbox – if the key was lost or stolen, you potentially would be giving away access to everything. Although using multiple passwords increases the difficulty of managing your passwords, it significantly improves security.

Avoid using public computers to access your online brokerage accounts. You never know who will be sitting down at the computer after you, or even how secure the computer is in the first place. Software applications exist that can track your keystrokes. If you must use a public computer, be sure to log out of the account completely when you are finished because simply closing a window or browser does not necessarily log you out. Further, delete the browser's history, temporary files and cookies when you are finished to minimize the risk of someone gaining access to your account.

Secure your mobile devices. Many mobile devices, such as smartphones or tablets, have software applications that give users automatic access to their online brokerage account. Unauthorized access to these mobile devices could compromise these accounts. If you have a device linked to your account, make sure that the device is password protected and that the application requires a second (different) password to access your account.

Fraudsters turning to prepaid cards

Wire transfers have been the payment method of choice from scammers looking to collect money from victims for decades. Typically, victims wire the money from one location to another using a company like Western Union or MoneyGram and the criminal gets away with untraceable cash. Recently, though, fraudsters have been changing tactics. Last year marked the first year prepaid cards – like Green Dot’s MoneyPak, InComm’s Vanilla Reload, Blackhawk’s Reloadit, and Bancorp’s NetSpend – have bumped wire transfers as the most common way consumers are paying money to scammers.

The scam typically works in one of two ways. In some cases, consumers are instructed by the scammer to take cash to a retail location, load it on to a prepaid card and send the physical card to the scammer or the scammer's accomplice. In other cases, consumers are told to load cash on to the card and then provide a PIN or control number (viewable via a scratch-off on the back of the card) to the scammer, who then deducts the funds remotely. In both cases, the scammer tries to convert the funds on the card into cash as quickly as possible so that the transaction can't be stopped.

Fraud.org relayed the below complaint as a typical example of how these cards get used by scammers:

“This lady on Instagram said she was going to sell me two pairs of shoes for $300. She said to put $300 into a NetSpend Reload Pack. As soon as I did I sent her the code on the back of the card as she asked and then she completely ignored me. She stopped texting me and ignored all my calls. I called the Netspend company and there is nothing they can do about it.”

While scammers are always looking for new ways to separate consumers from their money, consumers can arm themselves with the information they need to detect red flags.

  • If you are asked to send payment via a prepaid card to someone you only know online or over the telephone, chances are it is a scam;
  • Treat prepaid card PIN's and control number carefully – giving them out to someone is like giving them cash;
  • If you do give a PIN or control number to someone you suspect may be a fraudster, contact the prepaid card provider immediately. Unfortunately, consumers don't enjoy the same protections on prepaid cards that they do on credit cards, so you may not have the same anti-fraud protections.

6 Internet investment frauds to watch for

With the proliferation of social media, both investors and scammers have found a new playground. Differentiating legitimate information from snake oil has become even more difficult, though, as scammers have become more sophisticated than ever. Scam artists use social media and the Internet to conduct complex frauds and schemes that even the most seasoned investor may have trouble detecting.

Here are six examples of the types of schemes you should be on the lookout for when using social media and the Internet, as highlighted by the Securities and Exchange Commission:

Unsolicited offers to invest: Investment fraudsters look for victims on social media sites, chat rooms and bulletin boards and present you with an unsolicited sales pitch – meaning you didn't ask for it and don't know the sender. Using technology, scammers can even make many of these pitches seem extremely personalized. If you see a new unsolicited post on your wall, a tweet mentioning you, an email, or any other unsolicited communication regarding a so-called investment opportunity, you should exercise extreme caution.

Spreading false and misleading company information: Some fraudsters may look to exploit social media's influence by utilizing it to spread false and misleading company information to affect a stock's share price. The false information or rumors may urge investors to buy or sell a stock quickly. An example is a "pump-and-dump" scheme in which promoters "pump" up a stock price by spreading positive rumors and inciting a buying frenzy, only to "dump" their shares before the hype ends and the stock price drops.

Fraudulent online investment newsletters: While there are many legitimate investment newsletters, some are used to deceive investors. Some online newsletters are paid by companies to tout or recommend their stocks, which isn't illegal if the newsletter discloses who paid them to promote the stock. Fraudulent ones, though, will claim to offer independent, unbiased recommendations, but fail to explain conflicts of interests or biases.

Advance fee fraud: These frauds ask investors, often through email, to pay a fee upfront in advance of receiving any proceeds, money or stocks. The fraudster may describe the fee as a deposit, underwriting or processing fee, commission, tax or even an incidental expense that is promised to be repaid later. Investors are directed to wire (or send via prepaid card) to escrow agents or lawyers to make the payment seem more legitimate. Be cautious of any offer that claims you need to send money to make a return.

Internet-based fraudulent offerings:  An offering fraud involves a security that is made available to the public, but the terms of the offer are materially misrepresented. The offering may make false claims about the likelihood of a return to investors, such as guaranteeing a return. Investors should be alert to whether an offering has been registered with the Securities and Exchange Commission, or that an exemption has been granted. While there are legitimate unregistered offerings used by companies to raise funds from investors, fraudulent unregistered offerings are often used to conduct investment scams.

High-yield investment programs: These unregistered investments typically promise extraordinary returns at little or no risk to the investor. A website promoting a high-yield investment might promise annual (or even monthly, weekly or daily) returns of 30 percent or more. Watch out for any offering with words like "huge," "lucrative," "handsome," and "guaranteed."

Recent enforcement actions

In the first quarter of 2015, NFA issued Decisions, Member Responsibility Actions, Complaints and Final Orders in Registration Cases against the following NFA Member firms and individuals. Click on the name for more detailed information.

Decisions in Disciplinary Cases
Aspirant Management LLC
Luckow Group, Inc.
Paul D. Luckow
Roditi & Roditi LLC
Global Futures Exchange & Trading Co., Inc.
Kattayoun Hakimian
Chazon QTA Quantitative Trading Artists LLC
Lawrence I. Fejokwu
Leviathan Asset Management
Nextsource Trading Corporation
Stewart Reid Wilson
JP Morgan Clearing Corp.
UBS Financial Services, Inc.

Member Responsibility Actions
McElhannon Group, Inc.
Philip Mack Worley

Spartan Commodity Fund Management LLC
Alan J. Harry
Washington Asset Advisors LLC
Lei Li
Primary Assets Management Corporation
Accredited Investment Management Corp.
Peter G. Catranis
Chad Streifel
Tina Mozhayski, d/b/a RF INTL
CC Trading Company LLC
Christopher J. Craddock
JP Morgan Clearing Corp.
Andrew James Aronson

Final Orders in Registration Cases
80Plus Partners LLP
James T. Sherwin

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