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NFA Investor Newsletter

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January 24, 2013

In this Issue: Conducting Due Diligence
Online Investment Fraud
National Consumer Protection Week
BBB Smart Investing
Traders Expo Recent Enforcement Actions

Recent commodities frauds reinforce need for investors to conduct due diligence

People always say it could never happen to them. They say that the person they trusted was so nice, and seemed so professional. They say that they just can't believe that someone would take advantage of their relationship. This is the typical story told by victims of affinity fraud. And it's a familiar refrain recently, as reports continue to crop up from across the country about how yet another Ponzi scheme bilked innocent investors out of millions.

Earlier this month, a pair of stories made headlines in Arizona and Connecticut where fraudulent commodity pool operators and advisors were apprehended by authorities after years of conning unsuspecting investors.

The Republic published a story in early January about how Phoenix-based Ray Thomas Brown created a phony, unregistered trading firm and allegedly stole at least $1.2 million dollars from 60 investors located across the country. Brown, an ex-con masquerading as a wealthy retired banker with a long history of commodities trading success, operated his own firm, Ray Brown & Associates, from which he solicited investors to his Equity-Plus Commodity Group Trading Program by promising guaranteed 100 percent monthly returns.

According to federal investigators, Brown reportedly tempted investors with detailed summaries indicated he had made millions in prior investments, and sent them to Internet sites that supposedly supported his trading acumen. Brown also built up his customers' confidence by consulting with them via Skype, an Internet video chat service, and further ingratiated himself by cultivating personal relationships.

"I never met a smoother operator," one of Brown's victims, Ricky Johnson, told The Republic. "This man told me he loved me. Literally. He told me I was the nicest, kindest man he'd ever known. ... He took me for almost everything I had in savings; $70,500." In December, a federal court froze Brown's accounts, seized his computers and prohibited him from engaging in any investment activity.

Similarly, Connecticut state and federal authorities recently released further details about another fraudster, Feisal Sharif, who was arrested last September after stealing $5.4 million from as many as 80 investors. Investigators claim Sharif and his company, First Financial, ran a Ponzi scheme between 2007 and 2012 that involved equities futures, a Times Union article reported. Sharif purportedly promised investors returns of 1 percent to 15 percent on their investments per month.

The majority of Sharif's investors, according to the Connecticut Department of Banking, were people he met through religious activities and fellow Habitat for Humanity members.

Like Brown, Sharif was not registered to sell or provide advice to commodity pool investors.

In both cases, investors could have realized that the people and firms with whom they were investing were suspect by conducting a background check to find whether they were registered with the Commodity Futures Trading Commission and were an NFA Member.

NFA makes it simple for investors to conduct background checks on futures commission merchants, introducing brokers, commodity pool operators, commodity trading advisers, forex dealer members and others on its Background Affiliation Status Information Center (BASIC) service. Available free of charge, investors are urged to do a thorough examination of the principals and firms with which they are considering doing business before giving them any money.

  1. Beware of unsolicited investment offers. Scammers often seek out victims on social media sites, chat rooms and message boards. If you see a new post on your wall, a tweet mentioning you, a direct message, an email or any other unsolicited communication-both from anonymous and known contacts-regarding a so-called investment opportunity, you should exercise caution.

  2. Look out for common red flags. If an investment opportunity sounds too good to be true, it probably is. Be especially suspicious of claims that an investment will return huge profits, has "guaranteed returns" or "no risk"-these assertions often indicate extreme risk or fraud. Additionally, never feel pressure to "buy now"-most legitimate investment opportunities will not have strict time constraints.

  3. Be wary of affinity fraud. Investors should never make investments based solely on the recommendation of a member of an organization or group to which they belong, especially if that pitch is made online. Affinity fraud scams prey upon members of identifiable groups, such as religious or ethnic communities, the elderly or professional groups, where scammers leverage personal relationships to convince you of their investment's validity. Be sure to vet every opportunity regardless of how trustworthy the person seems. Sometimes the person bringing you the information has been duped themselves.

  4. Be considerate of your privacy and security settings. Investors who use social media as an investment tool should take steps to protect their privacy. On many social media sites, unless investors guard their personal information, it may be available not only to your friends, but also to anyone with Internet access-including fraudsters.

  5. Ask questions and conduct due diligence. Investors should research every aspect of an offer before making a decision. Never rely on a testimonial or take the promoter's word at face value. You can conduct background checks, determine registration status and view the disciplinary histories of futures and forex professionals, companies and others by using NFA's Background Affiliation Status Information Center (BASIC) service.

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