Articles Tagged with SEC

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SEC Whistleblowers

On January 23, the SEC announced that its whistleblower program will pay out to three whistleblowers a combined award of $7 million.  The whistleblowers’ awards were for helping the SEC pursue an investment scheme.

One whistleblower gave the SEC the initial information that launched the SEC investigation.   That whistleblower will receive more than $4 million.  Two other whistleblowers jointly provided additional evidence that also contributed to the SEC’s successful enforcement action.  Those two whistleblowers will split more than $3 million.

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AdobeStock_78797750-300x199It’s your money.  You worked hard to earn it. It’s taken years to save it. Now you need to protect it. Here are some tips to help you make more informed investment choices and protect yourself from investment scams.

  1. Check out the “salesperson.” Just because someone says they have a securities license doesn’t mean it’s true. We recently had a potential client call with a complaint about his “stockbroker” who we quickly discovered hasn’t been licensed since the 1990’s. Checking out purported stockbrokers is easy and free at FINRA’s BrokerCheck site. In addition to information about the securities licenses the individual has, it will show you his or her employment history, if he or she has ever filed for bankruptcy, and any customer complaints or charges by securities regulators.
  1. Don’t believe promises of little or no risk with high returns. The higher the returns, the riskier the investment. Period. 
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Prime Bank Instrument Fraud 

If you have been approached to invest in “prime bank” instruments, don’t do it!  It is a scam. Prime bank scams purportedly involve the trading of prime bank instruments issued or guaranteed by financial institutions such as the World Bank, the International Monetary Fund, or the U.S. Federal Reserve Bank.  Promoters of these supposed prime bank investments claim investors are guaranteed to receive high-yield returns in a matter of days or weeks, with little or no risk.  According to the U.S. Securities and Exchange Commission, these investments do not exist.

Fraudsters may use complex and official-sounding terms such as, debenture, bank guarantee, private funding project, offshore trading program, trading facility, or guaranteed bank note, in an effort to make the scheme seem legitimate.  Oftentimes, promoters will claim that the instruments are available by invitation only to select clients. They may claim these are the “secret” way wealthy people make money and will cite a requirement for secrecy if a potential investor asks for references.  Some goes so far as to have investors sign official-looking non-disclosure agreements.

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What Does it Mean to Trade Stock Options?

Options are complex investments and can carry substantial risk. Before you decide to trade options, you should understand the basics. Options can be used with a wide range of financial products.  This blog will focus on the most vanilla of examples, trading stock options.

What are Options?

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Over $100 Million in Rewards Given to Whistleblowers

The SEC has announced that, as of yesterday, it has made more than $100 million in awards to whistleblowers under the SEC Whistleblower program.  Created by Congress as part of the Dodd-Frank Act in 2010, the program has been up and running since August 2011.  After five years, the program appears to be a resounding success.

Under the whistleblower program, one who voluntarily provides a useful tip to the SEC that leads to the recovery of over $1 million in sanctions may get an award.  The information regarding a securities law violation must be independently known by the whistleblower and cannot be derived from another source.  The amount of the award is discretionary, but under SEC rules, the amount will be between 10% and 30% of the SEC’s recovery.  The amount may be adjusted based on the significance of the information provided, the degree of assistance provided by the whistleblower, the SEC’s interest in deterring future violations, and the whistleblower’s cooperation with a company’s internal compliance and auditing systems.  The Dodd-Frank Act also included anti-retaliation protections, creating both a private right of action for whistleblowers and enforcement mechanisms for the SEC.

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As many readers may know, “crowdfunding” is a modern innovation for raising money.  Typically using internet sites like Indiegogo, Kickstarter, or GoFundMe, a person can set up a website to raise money to develop a product or initiate some kind of project.  Projects funded through crowdfunding range the gamut from feature films to video games to new styles of clothing.  Virtually any project can be funded through crowdfunding.  In return, “investors” will get some small benefit, like early access to the feature film.

As of this week, new SEC regulations have been put in place to allow the sale of securities in small business through crowdfunding.  This securities crowdfunding will be overseen and regulated by FINRA.

According to FINRA, anyone can invest in crowdfunded securities, but the amount one can invest depends on an individual’s income and net worth.  For instance, if your annual income or your net worth is less than $100,000, then you can invest a maximum of $2,000, or 5% of either your income or net worth (whichever is greater).  If, however, your annual income and your net worth are both over $100,000, then you can invest up to 10% of your annual income or net worth (whichever is greater).  The total amount invested in crowdfunded securities can never exceed $100,000.

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mosquito-on-my-hand-1385575The SEC has issued an Investor Alert regarding fraudsters attempting to profit by exploiting the dangers associated with the Zika virus.  For those not following the news, Zika is a tropical disease transmitted by mosquitoes.  Outbreaks have been reported in South America, with cases popping up in the United States.  Zika infections in pregnant mothers have recently been linked to microcephaly in babies, i.e., babies born with heads much smaller than expected, leading to significant public health concerns.

According to the SEC, fraudsters are attempting to sell investments in companies supposedly developing treatments or other products for Zika.  Scams could include so-called “pump-and-dump” schemes, whereby fraudsters encourage investors to buy shares in a company or a fund by spreading rumors that the company is involved in developing a treatment or cure for Zika.  The rumors prompt investors to buy the shares, thus driving up the price.  The fraudsters then sell their shares while the price is high but before the truth is revealed.  Penny stocks are particularly susceptible to this kind of fraud.  As always, be wary before sinking a significant sum of money in penny stocks.

The SEC recommends that investors use common sense before putting money in a Zika-related investment.  Specifically, before making any investment – especially one tied to Zika – an investor should do the following:

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Starting May 16, 2016, companies can use crowdfunding to offer securities to John Q. Public.  Crowdfunding generally refers to obtaining small individual investments from a large number of people to finance a particular project. Here are some helpful tips to see if making a crowdfunding investment may be right for you.

Who uses crowdfunding?

Startups and early-stage ventures may use crowdfunding to seek financing for the development of a new product or service.  Prior to the approval of crowdfunding regulations, this type of “ground-floor” investing was typically unavailable to the mom and pop investor.

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Are you just starting to invest and ready to open your first brokerage account? Are unhappy with your current broker?  Here are some tips from the Financial Industry Regulatory Authority (FINRA) on how to find the right financial advisor and brokerage firm.

Ask for Recommendations

Talk to your friends and family members about who they invest with and for how long.  Ask them specific questions about their broker such as the kinds of services they were provided, whether the broker communicates with them regularly, have they had an problems or “bad experiences” with either the broker or his/her brokerage firm?  Don’t hire a broker just because he or she came highly recommended, and don’t stop when you get one name. Try to compile a list of at least 5 potential broker candidates.

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Brokerage Firms | West Palm Beach False Claims Act

The Financial Industry Regulatory Authority, also known as “FINRA,” provides a public database that investors can use to research their brokers’ professional background and disciplinary history.  Investors can learn important information such as:

  • Whether the broker has been sued by other investors;