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NFA Investor Newsletter

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July 31, 2012

In this Issue: Spotting Investment Scams
Social Media for Seniors
Understanding Seasonal Trends
Examining Exchange-traded Notes
Recent Enforcement Actions

FINRA offers 6 tips to spot investment scams

The Financial Industry Regulatory Authority (FINRA) has created a short video to help people learn how to recognize investment scam techniques. Created specifically to educate servicemen and women about the red flags of investment fraud and how to check the legitimacy of an investment product or professional, the video is applicable to any potential investor.

FINRA suggests the following six steps to spot scams:

  1. Don't assume a sales person is legitimate just because they have a fancy title or corner office with lots of certificates. When looking to invest, people should seek out investment professionals, such as brokers, investment advisers and insurance agents, all of whom are required to be registered with federal regulators. To verify FINRA-registered brokers' or advisers' credentials, visit

  2. Be wary of an investment pitch that guarantees a certain return or spectacular profits. No legitimate salesperson can make such claims. Ethical brokers or investment professionals always will acknowledge that with any investment comes risk.

  3. Don't be swayed by a seller's claim that everyone from their mother to their mechanic is in on the deal. A pitch about who has invested rather than why the investment is sound should raise hackles. Investors also should be wary of affinity fraud, in which a scammer will target groups with similar interests or backgrounds, such as religious groups, club or association members and ethnic groups.

  4. Refuse to be rushed into anything. If a salesperson gets pushy, says an investment is a limited time offer or that quantities are limited, investors should keep their eyes peeled for fraud.

  5. Never feel obligated to make an investment because a seller gives you something for free. Salespeople often rely upon freebies and other gifts to guilt investors into parting with their money.

  6. Further educate yourself about fraud tactics so you can educate yourself and loved ones. FINRA directs potential investors to for a free tool kit and a documentary on fraud protection.

In addition to the video, FINRA recently unveiled an interactive tutorial, "Avoiding Consumer Scams and Rip-offs" to further help educate people about popular types of fraud.

NFA also has an investor fraud guide, "Scams and Swindles: An Educational Guide to Avoiding Investment Fraud." Click here to download the PDF.

Seniors should beware when navigating perilous social media waters

The Securities and Exchange Commission's (SEC) Office of Investor Education and Advocacy recently released an investor bulletin intended to educate senior citizens when using social media as part of their investment process. The bulletin, "Social Media and Investing-Tips for Seniors," provides safety tips for older investors who use social media and highlights commons types of investment fraud.

One of the most rapidly growing segments of social media users, seniors frequently use social media these days to research stocks, find background information on financial professionals, get market news and engage with friends, family and other investors. But while social media offers a wealth of information, it's also a burgeoning forum for fraudsters to prey on seniors who are relatively new to navigating online networks.

The SEC offers five tips for seniors to avoid online securities fraud:

  1. Look out for red flags. The beauty of the Internet is that nearly anything is at your virtual fingertips but, unfortunately, much of what is out there is not what it seems. Any investment that sounds too good to be true likely is just that. Seniors should be particularly aware of unsolicited offers to invest outside of the U.S. Many fraudsters establish operations outside the U.S. so as to escape the long arm of regulators and to hinder victims' efforts to recover their money.

  2. Beware of unsolicited offers. If you see a new post on your Facebook wall, a tweet mentioning you, or receive an unsolicited instant message or email from an unknown sender, exercise caution. Unsolicited sales pitches are frequently part of online fraud schemes.

  3. Watch out for affinity fraud. Investment scams that prey upon members of identifiable groups, such as seniors, professional groups, or religious or ethnic groups—especially in online forums such as chat rooms or message boards—are commonly known as affinity fraud. Even if you know the person making the solicitation, be sure to thoroughly vet the information. Sometimes the person making the offer doesn't even know that the investment is a scam.

  4. Understand privacy and security settings. Especially on sites such as Facebook or MySpace, seniors should be careful to protect their privacy. Unless you take steps to guard personal information, it may be visible not only to your friends, but anyone with Internet access, including fraudsters. See the SEC's investor bulletin, "Social Media and Investing: Understanding Your Accounts," for more information on how to set up online accounts so as to ensure your privacy.

  5. Ask questions and get answers. We all know the adage, "Never judge a book by its cover." Just as you wouldn't want to miss out on the most exciting book that just happens to lie hidden beneath a banal cover, the same is true for judging the integrity and validity of a person and their investment plan online without doing your due diligence first. The best-sounding investment opportunity could very well be a scam, so thoroughly investigate the seller and the investment before agreeing to anything.

To check out registered brokers, use the Financial Industry Regulatory Authority's BrokerCheck website. You can investigate registered investment advisers on the SEC's Investment Adviser Public Disclosure website.

And if you're contemplating opening a futures account or already are an NFA Member pondering a new business relationship, visit NFA's BASIC (Background Affiliation Status Information Center). BASIC contains Commodity Futures Trading Commission (CFTC) registration and NFA membership information and futures-related regulatory and non-regulatory actions contributed by NFA, the CFTC and U.S. futures exchanges.

Don't be fooled by brokers touting seasonal reports

One of the most common types of investment fraud perpetuated by brokers focuses on seasonal trading in certain markets, especially with relation to heating oil and unleaded gasoline. Nefarious brokers will sometimes claim that seasonal tendencies, such as people needing oil to heat their homes in the winter or driving more often in the summer, offers the potential for big bucks. But unlike Homer Simpson's pumpkin futures investment that went bust after he failed to sell before Halloween, most markets already have factored for any seasonal demands.

To wit, be wary of anyone talking up the U.S. Energy Information Administration's (EIA) Annual Energy Outlook 2012, released in June, which predicts modest growth in demand for energy over the next 25 years, but increased domestic crude oil and natural gas production. The EIA says this increase in oil and gas production largely is being driven by rising production from tight oil and shale resources.

Because of this, EIA expects the following trends:

  • U.S. reliance on imported oil to drop

  • Domestic production of natural gas to exceed consumption, allowing for net exports

  • A growing share of U.S. electric power generation to be met with natural gas and renewables

  • Energy-related carbon dioxide emissions to remain below their 2005 level from 2010 to 2035, despite the absence of new federal policies designed to mitigate greenhouse gas emissions

Conversely, there are still occasional exceptions when seasonal trends can affect the market. Take, for instance, the severe drought that's afflicted the Midwest in June and July and predictions from the National Weather Service calling for continued high temperatures and low rainfall to continue from August through October.

As a result of these adverse conditions, CME Group warns commodities investors to watch out for fluctuating prices, since farmers and traders likely will be forced to navigate the weather market for a protracted period—possibly until harvest time.

CME adds that the drought also will affect cattle farmers due to rising corn and soybean prices and the stress of the arid conditions on the animals. However, the group suggests that farmers seeking to hedge 2013 production or traders looking to put on longer-dated trades hold off and see how things play out.

To learn more about seasonal trading and common types of investor fraud, read NFA's guide, "Scams and Swindles: An Educational Guide to Avoiding Investment Fraud."

Investor alert highlights features and perils of exchange-traded notes

Understanding the risks and complexity associated with exchange-traded notes (ETN) is crucial for investors before they spend their hard-earned money, according to a July investor alert from the Financial Industry Regulatory Authority (FINRA).

The alert, "Exchange-Traded Notes—Avoid Unpleasant Surprises," seeks to inform investors about the differences between ETNs and exchange-traded funds (ETF), suggest questions to ask when considering ETNs and provides a step-by-step checklist to help investors determine if an ETN is right for them.

An ETN is a type of debt security that trades on exchanges and promises a return linked to a market index or other benchmark, and can offer investors cost-effective exposure to everything from emerging markets to commodities.

But FINRA warns that ETNs can be tricky and are fraught with potential perils, including the risk that the issuer will default on the note or take other actions that may impact the ETN's price.

"ETNs are complex products and can carry a raft of risks," Gerri Walsh, FINRA's Vice President for Investor Education, said in a release. "Investors considering ETNs should only invest if they are confident the ETN can help them meet their investment objectives and they fully understand and are comfortable with the risks."

Dissimilar to ETFs, ETNs don't buy or hold assets to replicate or approximate the performance of the underlying index. The return on an ETN frequently hinges upon price changes if the ETN is sold prior to maturity (as with stocks or ETFs)—or on the payment, if any, of a distribution if the ETN is held to maturity (similar to other structured products).

FINRA explains that ETNs are listed on an exchange and can be bought and sold at market prices, like other exchange-traded investments. ETNs' market prices may fluctuate due to movements in the indices they track, ETN issuances or redemption activity.

ETNs can be tricky because their closing indicative value, as well as their intraday indicative value, is different from its market price, which is the price at which an ETN trades in the secondary market. In theory, an ETN’s market price should closely track its closing and intraday indicative values. However, an ETN’s market price can deviate, sometimes significantly, from its indicative value.

In addition to explaining the specifics, FINRA also lists a number of specific risks associated with ETNs:

  • Credit risk. ETNs are unsecured debt obligations of the issuer

  • Market risk. As an index's value changes with market forces, so will the value of the ETN in general, which can result in a loss of principal to investors

  • Liquidity risk. Although ETNs are exchange-traded, a trading market may not develop

  • Price-tracking risk. Investors should be wary of buying at a price that varies significantly from closing and intraday indicative values

  • Holding-period risk. Some leveraged, inverse and inverse-leveraged ETNs, are designed to be short-term trading tools, and the performance of these products over long periods can differ from the stated multiple of the performance (or inverse of the performance) of the underlying index or benchmark during the same period

  • Call, early redemption and acceleration risk. Some ETNs are callable at the issuer's discretion

  • Conflicts of interest. The notes' issuer may engage in trading activities that are at odds with investors who hold the notes

For more information on ETNs, visit FINRA's website.

Recent Enforcement Actions

In the second quarter of 2012, 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

Martin J. Allamian
Arjent Capital Advisors LLC
Michelle Bodenshok
Chicago Trading Managers LLC
Covenant Trading LLC
Bradley W. Crotzer
Dominique M. Da'Cruz
Derosa Research and Trading Inc.
Futures Technology LLC
Gem International Commodities LLC
Frank M. Holmes
Libanman Futures Inc.
Andre Julian
Howard K. Malman
Spencer K. Montgomery
Olympus Futures Inc.
Christine Stankoff
Sun Tech International Wealth Management Inc.
SureInvestment LLC
TMA Asset Management LLC
Trade Dock Capital LLC
TS Capital Management LLC
Clement Tung
Benjamin Wilson
Crosby Wood
Larry G. Young

Member Responsibility Actions

Altamont Global Partners LLC
Bruce A. Gwyn
Level III Management LLC
Level III Trading LLC
John G. Wilkins

Final Orders in Registration Cases

TriCor Financial LLC


Alpari US LLC
Atlantas Group Inc.
Capital Venture Holdings LLC
Toney B. Eggleston
FX Direct Dealer LLC
Global Leverage Inc.
James E. Green
Jermaine C. Harmon
Edmund K. Hysni
Informed Funds LLC
Institutional Liquidity LLC
Steven H. Joseff
Timothy J. Karlin
Richard A. Lani
Ryan Litfin
Scott S. Littlefield
SureInvestment LLC
Titan Capital Group III LP
TMA Asset Management LLC
TradingEdge Capital Management
Trend Fund Management LLC
TS Capital Management LLC
Michael G. Recine
Recine Trading Company
Vincent Capital Group LLC
David Waring
Benjamin Wilson
Crosby Wood

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Investor Information

Background Affiliation Status Information Center (BASIC)

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