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NFA Investor Newsletter


October 30, 2014
In this Issue:
10 signs that an unregistered offering may be a scam Social media flipping money 3 ways scammers are preying on Ebola fears FTC launches Pass It On campaign Visit NFA at Traders Expo Las Vegas NFA to speak on panels at FIA Expo 2014 Recent enforcement actions

 

10 signs that an unregistered offering may be a scam

Many companies engage in legitimate unregistered offerings to raise funds from qualified investors. In the past, soliciting or advertising unregistered shares was prohibited but, in 2013, the Securities and Exchange Commission (SEC) adopted a rule that allows unregistered offerings to be promoted provided an exemption is filed. These types of investments are not subject to some of the laws and regulations that are designed to protect investors in registered offerings, such as public stock sales that require disclosure documentation to be on file with the SEC. Despite these new regulations, fraudsters are still finding ways to pass investment scams off as unregistered offerings.

If you are presented with an opportunity to invest in an unregistered offering, in addition to your thorough research of the investment and the person selling it, the SEC advises investors to be on the lookout for these common signs of potential fraud:

1. Claims of high returns with little or no risk. This is a textbook warning sign of fraud. Every investment carries some degree of risk, and usually the potential for greater returns comes with greater risk.

2. The investment professional is not registered. Many forms of investment fraud that target retail investors are perpetrated by unregistered persons. Always check whether the person offering to sell you an investment is registered and properly licensed regardless of whether you know him or her personally. Investment registration, background and qualifications can be checked using FINRA's BrokerCheck or NFA's BASIC for derivatives investments.

3. Aggressive sales tactics are employed. Scam artists often pitch an investment as "once-in-a-lifetime," and create a false sense of urgency to force hasty decisions. Resist the pressure to invest quickly and take the time you need to properly investigate any investment before sending money or signing any agreements. A reputable investment professional will let investors take their time to do research.

4. There are problems with the sales documents. Avoid any investment in which the salesperson will not provide anything in writing. Legitimate offerings usually will be described in a private placement memorandum, or PPM. Additionally, sloppy offering documents containing typographical, spelling or other errors can be a red flag that the investment may be a scam.

5. There are no net worth or income requirements. Federal securities laws limit many private securities offerings to accredited investors.

6. No one else seems to be involved. Most offerings involve a number of third parties, such as brokerage firms, accountants or law firms. Be cautious if no one besides the salesperson appears to be involved with the deal, or if you are told not to contact someone who supposedly is involved with the investment.

7. It appears to be a sham or virtual office. A fraudster may establish a mailing address within a state in which he or she has no legitimate operations in an attempt to qualify for an exemption from registration. Be wary of any company that only has a P.O Box or you are unable to verify that the company has any actual operating presence in a given location.

8. The company is not in good standing. Any company seeking your investment should be listed as active or in good standing in the state where it was incorporated or formed. Every company must file and pay annual taxes to maintain this good standing. Each state, usually under the Secretary of the State, maintains a publicly accessible online database of companies.

9. The investment offer was unsolicited. Always consider the motivation of a person offering an investment, whether they are a stranger or close friend. Fraudsters often exploit the trust and friendships that exist in groups of people who have something in common. Be especially suspicious if you are asked to keep the investment opportunity confidential.

10. There are suspicious or unverifiable biographies of managers or promoters. Don't just take the promoter's word on his or her background. To appear legitimate, fraudsters may represent that they have had a successful career in the relevant industry when nothing could be further from the truth. Independently verify any claims, and ask the promoter for references.



Technology is breathing new life into an old get-rich-quick scam. Social media platforms such as Twitter, Facebook and Instagram are being used by fraudsters advertising ways to turn $100 into $1,000 by "flipping money." The pitch suggests investors can take advantage of "quirks" in payment systems to leverage additional cash and turn it into big money. Even better, all you have to do is give the promoter access to your prepaid debit card.

Want proof that the scheme works before sending them your money? The websites often come complete with pictures of happy investors posing with stacks of cash and testimonials about how easy it was to make the money.

Unfortunately, the only people making money on this are the scam artists.

These flipping scams are not new, but the use of social media and classified listings like those on Craigslist to promote them mark "a worrying trend," according to the National Consumers League because of the ease and speed with which victims are lured into the scheme.

The scheme usually is relatively straightforward. After the victim is convinced to try flipping his or her money, the scammer instructs them to buy a prepaid debit card and then contact the scammer, usually through a phone number or message, to provide the account and PIN. Once the scammer has access to the cash, they often block the victim from contacting them again through social media, leaving the victim out the money they put on the debit card.

Here are three steps you can take to protect yourself from these types of scams.

1. Do a quick search. Before making contact, do an Internet search of the solicitor's username or phone number. If it's a scam, there's a good chance other victims have posted complaints online.

2. Be wary of prepaid debit cards. Although wire transfers still are a favorite way for scammers to separate victims from their money, many are using prepaid debit cards in the same way. Treat prepaid debit cards like cash, and know that if you give the account information out, you will not be able to get that money back.

3. Don't trust your online friends. Accounts can be hacked, and it might not actually be your friends or family "liking" or sharing posts.

For more information on how to protect yourself from social media scams, read these tips we published in our last Investor Newsletter.



3 ways scammers are preying on Ebola fears

Nothing brings out scammers and fraudsters quite like emergencies. Fraudsters look to use high-profile events, such as the 2010 Haiti earthquake or tragedies like the 2012 Sandy Hook Elementary School shooting, to peddle all means of cons. The recent Ebola outbreak in West Africa is no different.

1. Fake Products. Scammers are looking to profit from public concern and fear in a number of ways. Banking on fear, many scam artists are making unsubstantiated claims that products they sell, containing everything from silver to herbal oils and snake venom, can cure or prevent Ebola. This is not so, says the U.S. Food and Drug Administration (FDA).

What you need to know: The FDA says that it has not approved any vaccines or drugs to prevent or treat Ebola for market. Although there are experimental drugs currently in the early stages of development, they have not been fully tested for safety or effectiveness and the supply is limited.

2. Charity Scams. Beyond selling false hope in the form of would-be miracle drugs, scammers also are likely to take advantage of the goodwill of consumers wishing to donate to Ebola relief efforts. According to Fraud.org, there often is an uptick in complaints from consumers about charity scams when natural disasters make news. Fraudsters may contact consumers by phone, email or text message posing as legitimate or legitimate-sounding charitable organizations and request donations.

What you need to know: Fraud.org recommends consumers ignore direct solicitations for donations. Instead, consider supporting a charity that has been vetted by organizations such as the Better Business Bureau's Wise Giving Alliance, Charity Navigator or GuideStar. The safest way to donate is by visiting a charity's website directly and giving via credit or debit card, which offer fraud liability protection.

3. Phishing Scams. Finally, phishing scams focusing on consumer fears about Ebola reportedly have been circulating with subject lines such as "People being quarantined" and discussing an "Ebola pandemic update."

What you need to know: The goal of phishing emails is to trick the recipient into voluntarily giving over sensitive information. Some phishing scams try to dupe people into clicking on a link or attachment that may contain malware, which can infect the recipient's computer and covertly collect personal information. Consumers should immediately delete these types of emails.

For more information about similar types of fraud, read NFA's Scams and Swindles guide.



FTC launches Pass It On campaign

The Federal Trade Commission (FTC) recently launched its Pass It On education campaign. The project encourages people to help raise awareness about fraud by talking with their family, friends and neighbors about avoiding common scams.

Pass It On is based on the concept that people are part of the solution to the problem, and not just the frequent victims of scammers. Using their experience and expertise, many people are respected sources of information within their social networks, and Pass It On encourages them to leverage those positions to help stem the tide of investment fraud.

The FTC has a variety of resources available, including online videos, articles, presentations and activities to help people start conversations about scams and pass on information that could help someone they know. Topics the campaign covers include identity theft, imposter scams, charity frauds, health care scams, "paying too much" scams and "you've won" scams.

Click here to learn more about Pass It On.



Visit NFA at Traders Expo Las Vegas

If you're local or just looking for an excuse to visit sunny Las Vegas, you can visit NFA at the 2014 International Traders Expo Las Vegas at Caesar's Palace in Las Vegas from November 19 to 22. The Traders Expo offers traders an opportunity to meet face-to-face with, learn from and ask specific questions of a long list of trading experts.

NFA will be located at booth #423 in the exhibit hall. Attendees are welcome to stop by, ask questions and pick up informational materials.

For complimentary registration to The International Traders Expo Las Vegas, click here or call 800.970.4355.



NFA to speak on panels at FIA Expo 2014

The Futures Industry Association's (FIA) Expo 2014 is coming up next week. The convention, which showcases products, services and information for market professionals and participants, will be held at the Hilton Chicago, located in Chicago, Ill., on November 5 and 6.

The annual convention offers a variety of sessions that allow attendees—ranging from business, operations and technology professionals and traders—to discuss industry trends, hear expert views on key issues, improve trading skills and learn about new products, systems and practices. NFA staff members will appear on panels at the following sessions:

Additionally, NFA staff will be on hand in the exhibit hall at booth 216. Expo attendees are welcome to stop by to ask questions and pick up information materials.

To register for FIA Expo 2014, click here.



Recent enforcement actions

In the third quarter of 2014, NFA's Business Conduct Committee issued Decisions, Final Orders, Complaints and Member Responsibility Actions against the following NFA Member firms and individuals. Click on the name for more detailed information.

Decisions in Disciplinary Cases
Forex Capital Markets LLC
Pan Asia Investment Group Inc.
Xiao Peng Hu
Institutional Liquidity LLC
Mark D. Krier
James D. Pieron
Jason L. Tanner
Ascona Management LLC
Andrew M. Keller
Vincent Capital Group LLC
Ryan Litfin

Final Orders
Joel W. Himel

Complaints
Forex Capital Markets LLC
Quantitative Trading Advisors LLC
Hatim Abdel Hamid Youssef
Wealth Creation Investments LLC
Fox Financial Group LLC
Marcy F. Javor
Boost Capital Inc.
FXDirectDealer LLC
Joseph Botkier
Cambridge Strategy Asset Management Ltd.
Michael A. Plaia, d/b/a Comtrade Financial Company
Michael Angelo Plaia

Member Responsibility Actions
Nord Capital Advisors LLC
Yakov Shlyapochnik


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