Download Investment Fraud - Utah Division of Securities

Utah Division of Securities
Utah Division of Securities
Leigh Davis-Schmidt
Securities Examiner
Utah Division of Securities
Utah Division of Securities Mission:
The Securities Division enhances Utah’s business
climate by protecting Utah’s investors through
education, enforcement and fair regulation of
Utah’s investment industry while fostering
opportunities for capital formation.
Utah Division of Securities
How Do We Accomplish This?
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Register Securities
License Investment Professionals
Conduct Compliance Examinations
Educate Investors
Investigate Investor Complaints
Enforce State Securities Laws
– Administrative & Civil Actions
– Criminal Filings
Utah Division of Securities
Top 10 Ways to Lose Your Money
Utah Division of Securities
1. Ponzi Schemes
2. Unlicensed Individuals Selling Securities
3. Unregistered Investment Products
4. Promissory Notes
5. Senior Investment Fraud
6. High-Yield Investment Schemes
7. Internet Fraud
8. Affinity Fraud
9. Variable Annuity Sales Practices
10. Unscrupulous Brokers
Utah Division of Securities
Why Is This Important To You?
EVERYONE IS A TARGET!
Utah Division of Securities
Ponzi Schemes
• Promise High Rates of Return, Little or
No Risk
• Use Money From New Investors to
Pay Earlier Investors
• Typically No Legitimate Business
Revenue
• Example: 12 Daily Pro
Utah Division of Securities
Unlicensed Individuals
• Lured by High Commissions
• Anyone Selling Securities Must Be
Licensed - No License, No Sale
Utah Division of Securities
Unregistered Investment
Products
• Bypass Stringent State Registration &
Disclosure Requirements
• Securities – Not Just Stocks & Bonds
• Investment Contracts
• Promissory Notes
• Viatical Settlements
• Promise High Returns, Little or No Risk
Utah Division of Securities
Investor’s Name
Utah Division of Securities
Promissory Notes
• Typically Issued by Little Known or
Non-Existent Companies
• Promise High Returns, Little or No
Risk
• Insurance Agents Often Targeted to
Promote These Notes
• Example: Beverly Hills Dev. Corp.
Utah Division of Securities
10% Per Annum
Foreign Currency
Investor’s Name
Utah Division of Securities
Senior Investment Fraud
• Often Claim to be “Senior Specialists”
• Certified Elder Planning Specialists (The
National Registry of Elder Planning Advisors)
• Senior Benefit Centers Network
• Senior Financial Survival Workshop
• Certified Senior Advisors
• Sundance Public Relations
• Ghost Written Books – Alligator Proofing Your
Estate
• Newsletters & Brochures – Senior Times
Utah Division of Securities
High-Yield Investment
Schemes
• Promise Double or Triple-Digit Returns
Through Access to “Risk Free Guaranteed
High-Yield Instruments”
• Prime Bank Schemes
• Access to Investment Portfolios of the World’s Elite
Banks
• “Secret Off-Shore Trading Programs”
Utah Division of Securities
Not A Solicitation
IMF Sponsored
High Yield
Investment Program
$600 Billion
In 10 Days
Utah Division of Securities
665%
In 12 Months
Secret Currency
Beyond Reach
of Government
Used By
World’s Wealthy
Utah Division of Securities
Internet Fraud
• E-mail, Web Sites, Instant Messaging,
Chat Rooms (Hidden Identities)
• $122 Million in Losses in 2002
• More Than 125,000 Victims and Over
$100 Million in Losses in 2003
• Very Little Money is Ever Recovered
Utah Division of Securities
Affinity Fraud
• “I am also a member of (insert your
religious, ethnic, professional or
community-based organization)”
• Same “deal” was made with a
prominent leader of your organization
– “name dropping”
• Example: Tooele Community
Utah Division of Securities
Variable Annuity Sales
Practices
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High Surrender Charges
Higher Costs than Alternative Investments
Benefits Cost Extra
Steep Sales Commission Paid to Agents
Long-Term Investment (10 Years or More)
May Be Unsuitable for Many Retirees
Utah Division of Securities
Annuity University
• Use Introductory
Seminars
• Offer Free Meal
• “Probe, Then
Disturb, Then
Enhance The
Problem”
Wall Street Journal July 2, 2002
Utah Division of Securities
Annuity University
• “You’re there to solve their problems, but you have to create
those problems first – No Problem, No Sale”
• “Tell them you can protect their life savings from nursinghome and Medicare seizure of assets. They don’t know what
that is, but it sounds scary…it’s about putting a pitchfork in
their chest.”
• “Show them their finances are all screwed up so that they
think Oh, no! I’ve done it all wrong – this will make you
money”
Wall Street Journal July 2, 2002
Utah Division of Securities
Utah Division of Securities
Unscrupulous Brokers
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Unsuitable Investment Recommendations
Excessive Trading in Client Accounts
Unauthorized Trading
Guaranteeing Clients Against Loss
Borrowing Money From Clients
Example: Christofferson
Utah Division of Securities
Common Threads
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Promise of High Returns
Promise of Little or No Risk
Prey on Investors’ Trust
Investors Don’t Ask Questions
Utah Division of Securities
Women-Specific Issues
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Flatter Factor
Romantic Interest
Too Trusting
Afraid to Confront or Question
Examples:
– Scharbach
– Simper
– Deussen
Utah Division of Securities
So, What Can You Do?
Utah Division of Securities
• Ask Questions – Be An Informed Investor
• Check Out Strangers Touting Strange Deals
• Watch Out For Salespeople Who
– Prey On Your Fears
– Try To Rush Your Decision
• Don’t Be Afraid To Hang Up The Phone
• Don’t Put All Of Your Eggs In One Basket
• Monitor Your Investments - Always Stay In
Charge Of Your Money
Utah Division of Securities
• Get Everything In Writing And Keep A Copy
Of All Documents
• Risk No More Than You Can Afford To Lose
• If You Don’t Understand The Investment Avoid It!!!
• Report Misconduct, Fraud Or Abuse To The
Division
• Pass This Information On To Your Family,
Your Friends, And Others
Utah Division of Securities
REMEMBER:
Investigate EVERYTHING
Before You Invest
Utah Division of Securities
Utah Division of Securities
1-800-721-SAFE (7233)
(801) 530-6600
www.securities.utah.gov