Scams

80% of People Targeted by Investment Scams

Yahoo news reported a shocking statistic.  Almost 80% of US adults have been targeted by an investment scam.  FINRA conducted the poll and found that 40% of the people surveyed were unable to recognize the classic red flags of an investment scam.  They asked additional questions and found that 96% of people would not admit to being victim to a financial fraud so many investment scams go unreported.

With these shocking statistics it is important for people to protect themselves.  Here are some things you can do to make sure you don’t become victim to an investment scam.

  • Read the SEC updates on recent scams that have been busted.
  • If you are investing in a private offering check the SEC database to see if they have filed a Form D.  The Form D will provide information on the offering.
  • Read the SCOR disclosures associated with a Reg D offering.  Some companies will complete this in order to answer investor questions.
  • Research the industry.  Make sure that the claims a company is making coincide with what is happening in the market place.  For example if someone wants you to invest in a new technology that is currently being used by 30 other companies…. you should probably run away.
  • Run a background check.  You can a small fee and run a criminal background check on the owners.
  • Use an escrow account.  Instead of giving the company a check deposit the funds into an escrow account and only release them after you have received all of the necessary documents to prove your ownership.
  • Speak with the company attorney.  If the company does not have an attorney that is willing to speak with you that should be a red flag.  Issuing a private offering is a big deal and hiring council is part of that process.  Take down the information on the attorney and let them know you are doing it.  Check with the state bar to see if they are licensed.
  • Review their financial disclosures with your own CPA or accountant.  They will be able to point out red flags and tell you if the company is in line with industry standards.
  • If it sounds too good to be true it probably is.
  • Don’t be pressured.  If a company is pressuring you to invest without reviewing documents, consulting your accountant, or attorney – run the other way. Reputable companies will have no problems with you discussing the opportunity with your advisers.
  • Invest in what you understand.  If you know the industry, or are able to research it, then you are more likely to make a wise decision.  When you invest in things that you don’t understand or simply don’t make sense it is easier to be fooled by scammers.
  • Invest in U.S. based companies.  Sending money overseas is extremely risky and inadvisable.  If you want to have investments abroad focus on investing through a foreign exchange.
  • Stay local.  When you invest in a local company you have an opportunity to meet with the owners, inspect operations, and speak with their vendors and clients.  The more you know about a company the less likely you are to be scammed.
  • Read, read, read – everything.  Even if you are investing in a reputable company, through a broker dealer, or buying municipal bonds read the offering statement thoroughly.  Even cities have defrauded investors so take your time to read and research.

Statistically most investors will make a mistake from time to time.  If you have, just focus on being more diligent next time.  For more tips visit the SEC’s website.  They publish investor bulletins on a regular basis in order to educate the general public on niche industries and investment vehicles.

AIC Capital Group Charged with Fraud

The Securities and Exchange Commission (SEC) charged the founder of New York based AIC Capital Group, Fredrick D. Scott, with defrauding his investors while simultaneously grossly misrepresenting the amount of assets under his control.

According to the complaint filed by the SEC Scott registered his company AIC Capital Group as an investment advisor. Once registered Scott then repeatedly touted the firm’s registration under the Securities laws and proceeded from one scheme to another to defraud both small businesses and individual investors. One variation of Scott’s scheme was the so-called advanced money scheme. Under this scheme Scott promised investors that AIC would provide multimillion dollar loans to people seeking capital. Investors were told that in order to make that happen they needed to advance a small portion of the loan to AIC, which was supposed to turn around and send the entire amount back to the investors. However, Scott would simply keep the money and had no intention of refunding it or making good on the loan proposed.

Another scheme perpetrated by Scott involved offering investors the opportunity to make a bridge loan. Under this plan investors would fund a portion of a loan to a third party entity, while Scott through AIC was supposed to fund the balance. In exchange the investors were told that they would receive a substantial return on their initial investment. As with all his schemes, Scott, would simply keep the money and no investments were actually made.

“Scott told brazen lies about the value of ACI’s assets under management and its ability to deliver huge returns on various investments. Our examination and enforcement staff aggressively pursue investment advisers who flout the registration provisions of the securities laws for their personal gain, especially those who attempt to cover up their misdeeds by flat-out lying to our examiners.” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The US Attorney’s Office for the Eastern District of New York announced, in a parallel action that Scott had plead guilty to criminal charges. Included in those charges were an admission of making false statements to the SEC. Scott confessed to misleading investigators from the SEC who were investigating whether Scott and AIC had accepted loans from investors. The investigators soon referred the matter to criminal authorities.

Scott falsely told investors that AIC had over $3.7 billion in assets under management to bolster the firm’s credibility. Offering investors once in a life time opportunites for return on investment, Scott solicited funds from a variety of investors with the lure of high rates of returns. He has made no returns on investment and stole the money invested.  Much of the money was illegally spent on Scott’s personal lifestyle which included private school tuition for his children, travel and hotels, and several thousand dollars in dental bills.

The SEC’s complaint charges Scott with violating Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5, Section 207 of the Investment Advisers Act for filing a false Form ADV, and aiding and abetting ACI’s improper registration in violation of Section 203A of the Advisers Act.

There is an old adage, if it is too good to be true it probably is. When investment advisors or companies offer the ability to receive huge returns with very little to substantiate what they are offering, it should be a red flag to any investor. Doing the right amount of diligence and knowing where your money is going is paramount in protecting your interests and ensuring that your hard earned money doesn’t become somebodies root canal.

 

 

Miami Charged With Civil Securities Fraud

SEC Charges the City of Miami With Civil Securities Fraud

The Securities and Exchange Commission accused the city of Miami of civil securities fraud on Friday, charging that the city and its former budget director were playing “shell games” with city bank accounts. As part of the complaint, the SEC accused the city of Miami of deliberately misrepresenting the city’s finances to bond investors.

In a complaint filed in Federal Court in Miami on Friday, the SEC alleged that the city and its former budget director, Michael Boudreaux, were making material omissions and misrepresentations about internal funds transferred in the run up to the offering of three 2009 bond offerings totaling $153.5 million.

The complaint alleges that Boudreaux orchestrated transfers of funds to mask mounting deficits and falsely inflate reserves in the cities financial statements for 2007 and 2008. The SEC is seeking to prohibit the city from violating securities laws, while imposing financial penalties of hundreds of thousands of dollars on both Miami and Boudreaux.

The director of the SEC’s Miami office, Eric Bustillo said in a statement that “Miami cannot continue to play shell games with its finances”, and added that both investigators and the markets deserve complete transparency when considering the city’s municipal bond offerings.

Ironically the City of Miami is already under a cease and desist order from 2003 for similar misconduct, making it the first time the SEC has had to investigate a city already under an existing court order. As a result the federal complaint also seeks to require the city to comply with the existing cease and desist order.

The SEC investigation began in 2009 after an expose in the Miami Herald revealed that Boudreaux had transferred $37.5 million of the city budget from construction projects he claimed no longer needed the funding. However, SEC investigators found that the projects were still in need of those funds or the funds had already been spent. The transfers allowed Boudreaux and the city to plug large holes in their budget and meet the requirements for a general fund reserve, which Boudreaux tried to inflate to $100 million. The end result of all the financial maneuvering was that the city of Miami was able to receive a favorable credit rating from the rating bureaus.

SEC investigators are calling Boudreaux   “the architect of the scheme”, a charge vigorously denied by his attorney who insists that his client is being made a scapegoat.

The city itself has vowed to fight the charges and Major Tomas Regalado denounced the charges as making the city pay for sins of the past. In a statement released on Friday, vowing to fight the SEC, the city said “The SEC’s lawsuit contains baseless allegations that the City misled the credit rating agencies about the transfers in advance of certain bond offerings conducted by the City in May 2009. In truth, the City discussed the transfers with the rating agencies …’’

The SEC has uncovered at least one smoking gun email where then Finance Director Diana Gomez commented to Boudreaux “As originally stated at the [Feb. 26, 2009] meeting, I do not believe it is fiscally prudent or financially responsible to mask the loss in the General Fund for FY 2008 with these journals”

In 2010, after being fired by then City Manager Carlos Mogoyo, Boudreaux filed a whistleblowers lawsuit alleging that he was fired for refusing to mislead SEC investigators. Another whistleblower lawsuit was filed by Victor Igwe, the city auditor at the time of the budget transfers who in a series of audits questioned the actions, calling them “illegal” after commissioners let his contract expire in June 2011.

Separately SEC investigators are also probing the public financing of the Miami Marlins $634 million ball park in Little Havana, honing in on whether city officials mislead those who voted for the plan.

Both investigations are still ongoing.

For investors this is a classic story of requiring due diligence to be thorough and conducted independently, regardless of who the issuer is and what their alleged reputation is. Few would expect a city to go to such lengths to defraud the public, unfortunately as we can see here it happens.

 

Fighting Lead List Fraud

7 Ways to Help Fight Lead List Fraud

No one doubts the value of sales lead lists and surveys prepared by reputable vendors. Many sales organizations rely on the data on these lists to find leads, qualify prospects, and pursue sales. This blog is not about the trustworthy list vendors, like SalesLeads.tv, which provide high-quality information for legitimate reasons. Rather, we are going to look at the dark side of list sales, in which unscrupulous hucksters commit fraud on the public using “sucker lists“.

How Does Someone End Up on a Sucker List?

Sucker lists contain the names and contact information for individuals who are, for various reasons, susceptible to telemarketing and/or mail fraud and get-rich-quick schemes. There are different ways to make it onto a sucker list, including:

  • lottery winners and sweepstake participants
  • travelers
  • inheritors and the newly rich
  • the elderly
  • the unemployed
  • illegal aliens
  • customers of diploma mills
  • charity givers
  • political contributors
  • people who believe in astrology
  • multilevel marketing
  • online gamblers
  • loan modification
  • credit repair
  • leverage metals and currency

Each of these groups may be conned by bottom-feeding fraudsters who can exploit a person’s vulnerabilities. Lottery participants, for instance, may be ever on the lookout for a quick score. A fraudster might push a so-called “winning number generator” that promises to yield you a winning lottery ticket within 60 days. The elderly might be bullied into buying non-existent insurance or annuities. You can easily imagine scenarios for each kind of person on a sucker list. Often, sucker lists contain financial, credit card information and ACH information about its list members. Armed with this kind of information, scammers can impersonate law enforcement or any company you used your credit card with, and utilize that information for identity theft. The variety of nefarious schemes is endless, but usually involves persuasive sales pitches, scare tactics, and exaggerated claims.

We advocate seven approaches to help authorities crack down on these illegal activities:

1)     Expanded use of data from public complaints, criminal investigations and civil suits to gather and share intelligence about fraud schemes and key participants, and an Americas Most Wanted Scammers show or documentary.

2)     Undercover operations to nab purveyors of sucker lists, seeding these lists with law enforcement decoy information.

3)     Public education programs to make individuals and businesses more aware of marketing fraud.

4)     Identification and support of fraud victims with activities such as intervention services and victim-support networks.

5)     Expanded coordination among regulators, law enforcers and investigators to help prosecute fraudsters. Coordination should occur at the local, national and international levels. This includes the establishment of joint task forces to take on the worst criminals.

6)     Enforcement of the FTC and FCC Do Not Call provisions, especially registration per area code. Almost all of these fraudsters do not have a SAN number and haven’t registered to dial area codes at the federal or state level, an obvious Achilles heel that law enforcement should pursue.

7)     Self-regulation by the list industry, including the formation of a regulatory body that polices its own members.

We hope this information helps you understand the list brokerage business.