Background:

FTX emerged as a prominent player in the cryptocurrency exchange market, offering innovative features and aggressive marketing strategies. Founded in 2017 by Sam Bankman-Fried and Gary Wang, FTX quickly gained traction with its wide array of trading products and sophisticated trading tools. The platform’s user-friendly interface and competitive fee structure appealed to both novice and experienced traders, contributing to its rapid growth and expansion.

Central to FTX’s branding were celebrity endorsements from high-profile individuals across various industries. Notably, Tom Brady, the legendary NFL quarterback, and Kevin O’Leary, the renowned investor and television personality, became the face of FTX, lending their credibility and influence to the platform. Their association with FTX bolstered its visibility and credibility, attracting a significant influx of investors eager to capitalize on the burgeoning cryptocurrency market.

Two Legal Theories of Spokesperson Responsibility:

1. Misrepresentation and Fraud:

Spokespeople play a pivotal role in shaping public perception and influencing consumer behavior. Their endorsements carry significant weight, particularly in industries like finance and technology where trust and credibility are paramount. In the case of FTX, the endorsements of high-profile figures like Tom Brady and Kevin O’Leary lent legitimacy and credibility to the cryptocurrency exchange, attracting a sizable number of investors eager to capitalize on the burgeoning crypto market.

However, with great influence comes great responsibility. Spokespeople have a duty to ensure the accuracy and truthfulness of their endorsements. If they knowingly disseminate false or misleading information about a product or service, they can be held liable for misrepresentation and fraud. This duty stems from the fundamental principle of honesty and fair dealing in commercial transactions.

In the context of FTX, investors may have relied on the endorsements of celebrities, like Brady and O’Leary, when making investment decisions related to FTX. They trusted that these endorsements were based on accurate and reliable information about FTX, at least subconsciously concluding that FTX’s financial stability, security measures, and regulatory compliance were up to par. However, if celebrity spokespeople knowingly made false or deceptive statements about FTX, such as exaggerating its profitability or downplaying its risks, they could be held accountable for misrepresentation and fraud.

Investors who suffered financial losses by relying on these endorsements may have grounds for legal action. They could seek restitution damages for their losses suffered as a result of the spokespeople’s misrepresentations. Recoverable damages might include compensation for lost investments, and, if a spokesperson’s actions were egregious enough, punitive damages might be a component of damages in order to deter similar misconduct in the future.

To defend against allegations of misrepresentation and fraud, spokespeople may argue that they acted in good faith and based their endorsements on the information available to them at the time. They could contend that any misstatements were inadvertent or the result of honest mistakes, rather than intentional deception. Additionally, they would point to disclaimers or qualifications included in their endorsements, indicating that they were expressing opinions rather than making factual assertions or investment recommendations.

Ultimately, the determination of liability for misrepresentation and fraud will depend on the specific facts and circumstances of each case. Courts consider factors such as the nature and extent of the false statements, the degree of reliance by investors on any misrepresentations, and the intent of the person making the misrepresentations. However, spokespeople have the duty to exercise diligence and integrity with their endorsements, as their actions can have far-reaching consequences for investors and the integrity of the financial markets.

2. Negligent Misrepresentation:

In addition to intentional misrepresentation and fraud, spokespeople can also be held accountable for negligent misrepresentation if they fail to exercise reasonable care in verifying the accuracy of the information they convey. Negligent misrepresentation occurs when a party makes a false statement without adequate knowledge or basis for believing it to be true, leading others to rely on the information to their detriment.

If spokespeople made statements about, for example, FTX’s financial stability or security measures without conducting sufficient due diligence, they could be liable for negligent misrepresentation. Investors who relied on these endorsements when making investment decisions, trusting that the information conveyed by the spokespeople was accurate and reliable, would be those who could possibly file a claim. If it is later revealed that the spokespeople failed to verify the information or knowingly disregarded red flags indicating the platform’s vulnerabilities, they could be held accountable for the resulting losses suffered by investors.

To establish liability for negligent misrepresentation, investors would need to demonstrate several key elements. First, they must show that the spokespeople made a false statement of material fact regarding FTX. This could include assertions about the platform’s profitability, regulatory compliance, or security protocols. Second, investors must prove that the spokespeople lacked a reasonable basis for believing the statement to be true or failed to exercise reasonable care in verifying its accuracy. This could involve presenting evidence of inadequate due diligence or reckless disregard for the truth. Finally, investors must establish a causal connection between the negligent misrepresentation and their financial losses, demonstrating that they relied on the false statement to their detriment.

In defending against allegations of negligent misrepresentation, spokespeople may argue that they conducted reasonable due diligence and believed the information they conveyed to be accurate at the time they made their endorsement. They would point to industry standards and practices regarding endorsements, indicating that they followed established protocols for verifying information and ensuring compliance with regulatory requirements. Additionally, spokespeople could emphasize any disclaimers or qualifications included in their endorsements, indicating that they were expressing opinions rather than making factual assertions.

The liability determination for negligent misrepresentation will depend on the specific facts and circumstances of each case, as with intentional misrepresentations.

Conclusion:

The collapse of FTX and the subsequent investor losses underscore the multifaceted legal issues surrounding the responsibilities and liabilities of spokespeople endorsing cryptocurrency platforms. While celebrity endorsements can enhance brand visibility and credibility, they also entail significant legal risks if not approached with caution and diligence. As regulatory scrutiny of cryptocurrency platforms intensifies, spokespeople must exercise prudence and transparency in their promotional activities to avoid potential legal repercussions and safeguard investor interests. Investors affected by losses should seek guidance from experienced investment loss attorneys to explore their legal options and pursue accountability from all implicated parties, including spokespeople and platform operators like FTX. By addressing these legal complexities head-on, stakeholders can navigate the aftermath of the FTX collapse and work towards restoring trust and integrity in the cryptocurrency market.

Here are the key findings of which investors should be aware:

• LPL Financial received a censure and a substantial $5.5 million fine.
• The firm was ordered to pay $651,374.51, plus interest, in restitution to affected customers.
• The AWC revealed LPL Financial’s failure to supervise transactions by registered representatives, leading to potential sales practice violations. Approximately 830,000 unreported transactions raised concerns.
• LPL Financial’s retrospective review uncovered potentially unsuitable transactions, including purchases of class C and class B mutual fund shares, resulting in approximately $546,000 in potentially excessive sales charges.
• The firm provided inaccurate information to customers regarding switch transactions, misrepresenting fees due to errors in its databases.
• LPL Financial failed to identify potentially unsuitable transactions involving Unit Investment Trusts (UITs), causing customers to incur approximately $31,000 in sales charges.
• LPL Financial’s electronic tool, designed to alert supervisors to potentially unsuitable recommendations, failed to identify overconcentrated investments in Listed Business Development Companies (BDCs) for customers with low and moderate risk tolerance. This oversight resulted in customers incurring $73,930 in realized losses.

Understanding UITs and BDCs:

• Unit Investment Trusts (UITs):

UITs are investment funds that offer a fixed portfolio of stocks, bonds, or other securities. Unlike mutual funds, UITs have a set termination date, and investors receive a portion of the trust’s assets upon maturity.

• Business Development Companies (BDCs):

BDCs are companies that provide financing to small and medium-sized businesses. They are typically publicly traded and offer investors the opportunity to participate in the growth of these businesses, often through dividends and capital appreciation.

In short, investors impacted by LPL Financial’s regulatory actions should stay informed about restitution and remediation efforts. For those considering financial services, evaluating the regulatory history of potential firms is crucial for making informed investment decisions. Understanding investment products like UITs and BDCs can empower investors to navigate the financial landscape more effectively.

*Disclaimer: The information provided in this article is for informational purposes only and should not be construed as legal or investment advice. If you have concerns about your investments or financial advisor, it is advisable to consult with a qualified professional.*

At Savage Villoch Law, PLLC, we specialize in representing investors who have suffered losses due to financial misconduct and can help you explore your legal options. Contact us today to schedule a free consultation and learn more about how we can assist you in seeking justice and recovering your investments. Please contact us now at 813-200-0013 or email Bert Savage or Alfred Villoch directly at bert@savagelaw.us or alfred@savagelaw.us.

*Disclaimer: The information provided in this article is for informational purposes only and should not be construed as legal or investment advice. If you have concerns about your investments or financial advisor, it is advisable to consult with a qualified professional.*

The issue of unpaid arbitration awards issued by FINRA against FINRA registered representatives is a growing concern in the financial industry, and it has garnered attention from organizations like PIABA (Public Investors Advocate Bar Association). Many investors who have been wronged by FINRA registered stockbrokers rely on FINRA arbitration to seek restitution, but the enforcement of these awards can be problematic, especially when FINRA representatives refuse to pay them. To address this issue, one proposed solution is to mandate that all FINRA-registered individuals carry insurance as a safeguard against unpaid awards.

The concept of mandatory insurance for FINRA registered representatives has its merits, as it could potentially reduce the risk of investors being left without recourse. However, this solution isn’t without its complexities and potential downsides.

One of the significant challenges is the trend of FINRA registered brokers transitioning to become solely investment advisers, often in the pursuit of offering more comprehensive financial planning services or avoiding certain regulatory constraints. If FINRA were to mandate that all its registered representatives must carry insurance, this might create an additional competitive disadvantage for FINRA as it may accelerate incentives for those who wish to operate as investment advisers outside of the FINRA regulatory framework.

The fear among these professionals is that mandatory insurance could increase their operational costs and make it harder for them to compete in a market where they are already contending with multiple regulatory obligations and potential legal liabilities. It might discourage some financial professionals from choosing the broker-dealer path in the first place, thus limiting the options available to investors.

A potential solution to this issue could be a nuanced approach that considers the following:

1. Tailored Insurance Requirements: Instead of a one-size-fits-all approach, FINRA and the SEC could develop insurance requirements that are proportionate to the level of risk associated with a particular role or practice. This would ensure that professionals who deal with more complex or high-risk investments bear a greater insurance burden than those in lower-risk advisory roles.
2. Transparency and Disclosure: Investment professionals should be required to disclose their insurance coverage to their clients. This transparency would empower investors to make informed decisions and understand the level of protection available in case of disputes.
3. Consideration of Industry-Wide Insurance Schemes: Instead of individual policies, a collective insurance approach could be explored. This could involve industry-wide insurance schemes that share the risk among participants, making it more affordable and accessible.
4. Balancing Investor Protection and Industry Competitiveness: Striking the right balance between protecting investors and ensuring the competitiveness of financial professionals is crucial. Any insurance requirement should be carefully designed to achieve these dual objectives.

Addressing the issue of unpaid FINRA arbitration awards is vital to maintain investor confidence in the financial industry. While mandatory insurance could be a valuable component of the solution, it should be implemented in a way that does not unduly burden financial professionals, particularly those who choose to operate as investment advisers.

The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization that oversees the conduct of broker-dealers and their associated persons. One of the key principles that FINRA enforces is the prohibition of time and price discretion in customer accounts. In this article, we will delve into the specifics of this rule and its implications by using a real-life example involving Dominic Joseph Carlo, a financial professional based in North Bellmore, New York.

The Case of Dominic Joseph Carlo

On July 5, 2023, FINRA issued an Acceptance, Waiver, and Consent (AWC) in the case of Dominic Joseph Carlo, a registered representative with CRD #2731304. Carlo was fined $2,500 and suspended from association with any FINRA member for 10 business days. The underlying issue in this case was Carlo’s exercise of discretion with respect to transactions involving customers without the necessary prior written authorization, a violation of FINRA rules.

Understanding Discretion in Financial Transactions

Before delving deeper into the specifics of Carlo’s case, it is crucial to understand what discretion means in the context of financial transactions. Time and price discretion, as defined by FINRA, refers to a broker-dealer’s ability to determine the time and/or price at which a customer’s order is executed. This discretion can be beneficial for clients who rely on their financial advisors to make decisions on their behalf. However, it is subject to strict regulatory oversight to protect the interests of investors.

The Rule on Discretion: Prior Written Authorization

FINRA Rule 2510 governs the exercise of discretion by registered representatives in customer accounts. It requires that any exercise of time and price discretion must be authorized in writing by the customer and accepted by the member firm, prior to the transaction taking place. This written authorization ensures that the customer fully understands and consents to the discretion being exercised on their behalf. The rule aims to maintain transparency and accountability in the financial industry.

The Case Against Dominic Joseph Carlo

In the case of Dominic Joseph Carlo, the findings revealed that he had exercised discretion without obtaining the necessary prior written authorization from the customers. The key points of the case are as follows:

1. Oral or Implicit Authorization: The findings stated that the customers had given Carlo oral or implicit authorization for the transactions. However, oral or implicit authorization alone is not sufficient to comply with FINRA rules. These authorizations must be converted into written form and accepted by the member firm before any discretionary transactions take place.
2. Inaccurate Compliance Questionnaires: Carlo further exacerbated the situation by completing and submitting compliance questionnaires to the firm that inaccurately stated that he had not exercised discretionary authority in customer accounts. This not only contradicted his actions but also violated the principle of honesty and transparency that is integral to the securities industry.

The Consequences for Carlo

As a result of these violations, Dominic Joseph Carlo faced significant consequences, including a fine of $2,500 and a suspension from association with any FINRA member for 10 business days. The sanctions were imposed through the AWC process, where Carlo neither admitted nor denied the findings but consented to the sanctions.

The Importance of Compliance

Dominic Joseph Carlo’s case serves as a stark reminder of the importance of compliance with FINRA rules and regulations. The prohibition of time and price discretion is in place to protect investors and maintain the integrity of the financial industry. Broker-dealers and their associated persons must adhere to these rules to ensure the trust and confidence of their clients.

The Role of Member Firms

It is also essential to highlight the responsibility of member firms in this context. Member firms play a crucial role in ensuring that their associated persons comply with all applicable FINRA rules. In the case of time and price discretion, it is incumbent upon the member firm to review and approve any written authorizations from customers before permitting their registered representatives to exercise discretion.

Best Practices for Registered Representatives

Registered representatives must follow best practices to avoid regulatory violations and protect the interests of their clients:

1. Obtain Written Authorization: Always ensure that written authorization is obtained from clients for any time and price discretion in their accounts. This authorization should clearly outline the scope of the discretion and the specific transactions it applies to.
2. Keep Records: Maintain accurate records of all communications with clients, including those related to discretionary decisions. These records can serve as evidence of the client’s authorization and protect against potential disputes.
3. Be Truthful and Transparent: Honesty and transparency are paramount in the financial industry. Never misrepresent your actions or provide false information in compliance documents.
4. Seek Guidance: If you are uncertain about any aspect of FINRA rules or compliance, seek guidance from your member firm’s compliance department or legal counsel.

Conclusion

If you have concerns about your investments, have experienced unauthorized transactions, or have been subject to financial misconduct, it’s essential to seek legal counsel. Protecting your financial interests should always be a top priority.

At Savage Villoch Law, PLLC, we specialize in representing investors who have suffered losses due to financial misconduct and can help you explore your legal options. Contact us today to schedule a free consultation and learn more about how we can assist you in seeking justice and recovering your investments. Please contact us now at 813-200-0013 or email Bert Savage or Alfred Villoch directly at bert@savagelaw.us or alfred@savagelaw.us.

*Disclaimer: The information provided in this article is for informational purposes only and should not be construed as legal or investment advice. If you have concerns about your investments or financial advisor, it is advisable to consult with a qualified professional.*

The Allegations

The heart of the matter revolves around allegations that Harrington recommended transactions within a customer’s account that not only served to inflate his own compensation but also inflicted undue financial burdens on the customer. The allegations suggest that these transactions were made without a reasonable basis to believe they were suitable for the customer’s financial situation and investment objectives.

The Vulnerable Investor

The customer at the center of this case was a 48-year-old individual who, following a life-altering disabling accident, entrusted Harrington with his investment assets. These assets were not just a means of growing wealth but a lifeline for financial security, given the customer’s inability to work due to the accident.

Inflated Compensation and Unnecessary Fees

However, rather than acting in the customer’s best interests, it is alleged that Harrington recommended actions that caused the customer to pay unnecessary commissions and fees, all to Harrington’s benefit. The transactions in question include the purchase of approximately $1.4 million in market-linked investments (MLIs), for which Harrington received fees. Shortly thereafter, Harrington moved these MLIs to another account, triggering yet another round of fees for both Harrington and the customer.

Questionable Investment Decisions

Furthermore, Harrington recommended the sale of approximately $550,000 worth of MLIs and directed the proceeds to purchase other securities in a manner that incurred approximately $7,550 in total commissions. Harrington also advised the customer to liquidate over $1.1 million and invest over $1 million in different exchange-traded funds (ETFs), generating approximately $25,000 in total commissions for himself. It is alleged that Harrington could have recommended alternative approaches that would have avoided these unnecessary and unwarranted fees and commissions.

Actions to Increase Fees

A concerning aspect of the allegations is that the timing and manner of these transactions appear to have been designed solely to increase Harrington’s fees, with little regard for the customer’s financial well-being.

Short-Term Trading and Unsuitable Recommendations

The AWC also highlights Harrington’s involvement in short-term trading, even in securities typically intended for long-term holding. For example, he recommended the purchase of Unit Investment Trusts (UITs) worth approximately $1 million in the customer’s account, only to sell each one shortly afterward. Harrington also recommended the purchase of MLIs in the customer’s account for $9,858,225, with a majority of these being sold for $6,582,043 shortly thereafter.

Frequent and Unwarranted Fees

Additionally, Harrington engaged in frequent and unsuitable transactions in master limited partnerships (MLPs), which resulted in additional and unwarranted fees. Although Harrington initially recommended that the customer purchase MLPs with the intention of benefiting from holding them long-term, it is alleged that he sold the MLPs shortly after their purchase, thereby contradicting his initial recommendation.

Conclusion

This case serves as a stark reminder of the importance of trust and accountability in the financial industry. Financial advisors are entrusted with the responsibility of acting in their clients’ best interests and providing suitable recommendations. Harrington’s alleged actions, as outlined in the FINRA AWC, appear to have fallen short of these ethical and legal obligations, leading to substantial harm to the customer involved.

Protecting Your Investments

Investors are encouraged to exercise due diligence when selecting a financial advisor and to monitor their accounts for any signs of suspicious or unsuitable activity. If you have concerns about your investments or financial advisor, it is advisable to seek professional advice and consider filing a complaint with FINRA to protect your interests.

If you have concerns about your investments, have experienced unauthorized transactions, or have been subject to financial misconduct, it’s essential to seek legal counsel. Protecting your financial interests should always be a top priority.

At Savage Villoch Law, PLLC, we specialize in representing investors who have suffered losses due to financial misconduct and can help you explore your legal options. Contact us today to schedule a free consultation and learn more about how we can assist you in seeking justice and recovering your investments. Please contact us now at 813-200-0013 or email Bert Savage or Alfred Villoch directly at bert@savagelaw.us or alfred@savagelaw.us.

*Disclaimer: The information provided in this article is for informational purposes only and should not be construed as legal or investment advice. If you have concerns about your investments or financial advisor, it is advisable to consult with a qualified professional.*

The Allegations

Jermaine K. Benjamin has come under scrutiny due to allegations of unauthorized transactions and misappropriation/defalcation. These serious allegations were brought to light when the FINRA member firm filed an amended Form U5, disclosing a written customer complaint related to these issues.

Refusal to Cooperate

In response to these allegations, FINRA initiated an investigation to ascertain the circumstances surrounding the amended Form U5 and the customer complaint. However, Benjamin’s actions during the investigation have raised concerns.

Without admitting or denying the findings, Benjamin consented to the sanctions and the entry of findings. These findings indicate that he refused to provide documents and information requested by FINRA in connection with its investigation. Such refusal to cooperate with regulatory authorities can have significant repercussions and further deepens the mystery surrounding the customer complaint.

The Importance of Cooperation

Cooperation with regulatory investigations is a fundamental expectation within the financial industry. When a financial advisor is subject to an investigation, it is crucial to provide the necessary documents and information to facilitate a thorough and fair inquiry.

Failure to cooperate not only raises suspicions but also can result in disciplinary actions, including sanctions. It is in the best interest of financial advisors to be forthright and cooperative during such investigations to maintain their professional reputation and compliance with industry standards.

Seeking Answers and Accountability

As this case unfolds, questions surrounding the customer complaint and the circumstances leading to the amended Form U5 remain unanswered. Investors and clients have the right to expect transparency and accountability from their financial advisors and the firms they represent.

If you have concerns about your investments, have experienced unauthorized transactions, or have been subject to financial misconduct, it’s essential to seek legal counsel. Protecting your financial interests should always be a top priority.

At Savage Villoch Law, PLLC, we specialize in representing investors who have suffered losses due to financial misconduct and can help you explore your legal options. Contact us today to schedule a free consultation and learn more about how we can assist you in seeking justice and recovering your investments. Please contact us now at 813-200-0013 or email Bert Savage or Alfred Villoch directly at bert@savagelaw.us or alfred@savagelaw.us.

1. Misalignment of Interests: While RIAs are held to a fiduciary standard by the Investment Advisers Act of 1940, this does not entirely eliminate the risk of self-interest affecting an RIA’s advice. For instance, RIAs might favor only those investment products from firms that are paying significant commissions to the RIA for selling that product. This means there is a significant potential conflict of interest causing an RIA to recommend the same small set of investment products to every potential client.
2. Limited Product Offering: Many RIAs have a limited range of investment products due to affiliations with certain investment companies. This could mean you may not have access to the full spectrum of investment options that might be more suitable for your retirement needs.
3. Lack of Transparency: Even though RIAs are required to disclose all material facts to their clients, the complexity of the investment products such as annuities and life insurance products may result in you not fully understanding certain investments, the adviser’s commission for selling a specific product, or the risks involved in an investment strategy recommended by the RIA.
4. Qualifications and Experience: RIA’s expertise and experience can vary significantly. While some have extensive experience and hold multiple qualifications, others might be newer to the industry and less experienced. A less qualified RIA might not provide the best advice or understand the intricacies of complex investment strategies. Further, it is important to check your adviser at brokercheck.org and investigate their history. There are plenty of RIAs who are and RIA because they are unable to be a stockbroker (yes, there is a huge difference.)
5. Costs: RIAs usually charge a fee based on a percentage of assets under management, which might be higher than what you’d pay if you managed your investments independently or did not invest in annuities or life insurance products. Additionally, some RIAs may have hidden costs or might charge additional fees for specific services on top of the percentage fees they charge.
6. Poor Communication: In some cases, you might find that your RIA does not communicate effectively or regularly. This could leave you feeling uninformed about your investment decisions and progress toward your retirement goals.
7. Inadequate Personalization: Some RIAs might use a one-size-fits-all approach to investment strategies, which could result in your retirement assets not being fully able to meet your specific goals, risk tolerance, and timeline to, or in, retirement.
8. Limited Accessibility: Depending on the RIA, you may face issues regarding the accessibility of your adviser. If they manage a large number of clients, they might not be available when you need them, impacting your ability to make timely decisions. This applies to the investment products that RIAs may recommend to you because the investment products often have significant penalties for early ‘surrender’ and withdrawals, or even have no option to gain access to your money.
9. Risk Management: Not all RIAs are skilled in managing risk effectively. A failure to appropriately assess and mitigate risk could potentially result in substantial losses for your retirement portfolio.
10. Lack of Oversight: While RIAs are regulated by either the Securities and Exchange Commission (SEC) or state regulators, this does not guarantee that your investments are safe. If the oversight body does not effectively regulate the RIA’s practices, your retirement assets could be at risk. Another oversight issue is that many RIA’s have no insurance to provide coverage to you for the RIA’s potential negligent or fraudulent handling of your account.

Despite these potential problems, it’s important to remember that many RIAs provide excellent service and can significantly contribute to the growth and protection of your retirement assets. The key is doing your due diligence in selecting an adviser. Check their qualifications, regulatory records, and references. Understand their fees, services offered and their investment philosophy. Good communication is essential, so ensure you feel comfortable discussing your needs and goals with them. Finally, always remember that it’s your retirement – stay informed and involved in the management of your assets.

Retirement planning can be a complex process, but knowing the potential pitfalls of entrusting your retirement assets to an RIA can help you make an informed decision that aligns with your retirement goals and financial situation.

Pros de las criptomonedas

1. Potencial de ganancias significativas: Uno de los mayores atractivos de las criptomonedas es su potencial de ganancias significativas. Desde su creación, Bitcoin ha experimentado un crecimiento fenomenal, con un aumento de más del 900% en solo un año. Aunque el crecimiento pasado no garantiza el crecimiento futuro, el potencial de ganancias sigue siendo atractivo para muchos inversores.
2. Inversión descentralizada: Las criptomonedas son una inversión descentralizada, lo que significa que no están controladas por ningún gobierno o entidad centralizada. Esto significa que las criptomonedas pueden ser menos susceptibles a la inflación y la manipulación.
3. Seguridad: Las criptomonedas se basan en la tecnología blockchain, que es altamente segura. Cada transacción es verificada por una red de usuarios y registrada en un libro de contabilidad público. Esto hace que las transacciones sean casi imposibles de falsificar o manipular.
4. Anonimato: Las criptomonedas permiten a los usuarios mantener cierto grado de anonimato en sus transacciones. Esto puede ser atractivo para aquellos que valoran su privacidad y seguridad.

Contras de las criptomonedas

1. Volatilidad: Una de las mayores preocupaciones con las criptomonedas es su volatilidad. Los precios de las criptomonedas pueden fluctuar enormemente en un corto período de tiempo, lo que las hace extremadamente arriesgadas. Los inversores deben estar preparados para la posibilidad de pérdidas significativas.
2. Falta de regulación: Las criptomonedas están relativamente sin regulación en comparación con otras formas de inversión, lo que las hace vulnerables a la manipulación y el fraude. Esto puede hacer que sea difícil recuperar las pérdidas en caso de fraude o robo.
3. Uso limitado: Aunque cada vez más empresas están aceptando criptomonedas como forma de pago, su uso sigue siendo limitado en comparación con las monedas fiduciarias. Esto significa que las criptomonedas pueden ser difíciles de utilizar en la vida cotidiana.
4. Riesgo de hacks: A pesar de la seguridad de la tecnología blockchain, las criptomonedas pueden ser vulnerables a hacks y robos. Si un inversor no toma medidas adecuadas para proteger su inversión, corre el riesgo de perderla.

Las criptomonedas tienen el potencial de generar grandes ganancias, pero también conllevan grandes riesgos. Si bien la inversión en criptomonedas puede ser atractiva para algunos inversores, es importante que se informen y entiendan los riesgos antes de tomar una decisión. Si usted ha sufrido pérdidas significativas en su inversión en criptomonedas debido a negligencia o fraude, es importante que busque asesor.

Póngase en contacto con Savage Villoch Law, PLLC, ahora para una consulta gratuita. Solo nos pagan si recuperamos dinero en su nombre. Llámenos ahora al 813-200-0013 o escríbeme ahora a alfred@savagelaw.us.

A margin account is a type of investment account that allows investors to borrow funds from their broker-dealer to purchase securities. With a margin account, investors are able to leverage their trades by borrowing against the value of their portfolio. This means that investors can potentially earn larger returns on their investments but also exposes them to increased risk.

Broker-dealers have a number of responsibilities when it comes to margin accounts. One of their primary responsibilities is to ensure that investors understand the risks associated with trading on margin. This includes providing investors with a detailed explanation of how margin accounts work, the potential risks and benefits, and any costs or fees associated with trading on margin.

Another important responsibility of broker-dealers is to ensure that investors meet the eligibility requirements for trading on margin. These requirements may vary depending on the broker-dealer, but typically include factors such as an investor’s financial standing, trading history, and investment objectives. Broker-dealers must also maintain appropriate documentation to demonstrate that investors meet these requirements.

Once an investor has been approved for a margin account, broker-dealers are responsible for monitoring the account to ensure that the investor is maintaining sufficient collateral to cover any potential losses. This is known as a margin call. If the value of the investor’s portfolio falls below a certain level, the broker-dealer may issue a margin call, requiring the investor to deposit additional funds or securities to maintain the required level of collateral.

Broker-dealers should clarify for investors that the broker-dealer has almost unfettered control over the margin account. The broker-dealer, in the face of a ‘margin call,’ can raise money to meet the margin call by selling stocks from an investor’s account without first asking the investor. The broker dealer can even sell out the entire account without the client’s authority to protect the broker-dealer.

Broker-dealers are also subject to the Financial Industry Regulatory Authority’s (FINRA) rules regarding margin accounts. These rules require broker-dealers to provide investors with a risk disclosure statement outlining the risks associated with trading on margin. Broker-dealers must also provide investors with regular statements outlining the status of their margin accounts, including the amount of margin used and any potential margin calls. Additionally, broker-dealers must also comply with all applicable laws and regulations governing their conduct, including the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

Another important responsibility that broker-dealers have is the responsibility to ensure that all investors are treated fairly and with integrity. This includes providing investors with accurate and timely information about their margin accounts, as well as ensuring that any fees or charges associated with trading on margin are reasonable and transparent. Broker-dealers must also have adequate safeguards in place to protect investors’ assets and prevent unauthorized access or theft.

Margin accounts offer investors the opportunity to potentially earn larger returns on their investments, but such accounts also come with increased risk. Broker-dealers have a number of important responsibilities when it comes to margin accounts, including ensuring that investors understand the risks and benefits of trading on margin, monitoring accounts to ensure sufficient collateral, preventing illegal trading practices, and complying with applicable regulations. As an investor, it’s important to work with a reputable broker-dealer who is committed to transparency, fairness, and integrity when it comes to margin accounts.

One of the biggest benefits of AI in investing is the speed and accuracy of decision-making. With the ability to process large amounts of data quickly, AI algorithms can analyze market trends and identify profitable investments much faster than human traders. In addition, AI algorithms can be programmed to avoid psychological biases that can negatively impact human traders’ decision-making. This could result in more rational and profitable investment decisions.

Another potential benefit of AI in investing is the ability to identify patterns in data that humans might miss. AI algorithms can analyze vast amounts of data, including financial data, news articles, and social media, to gain a comprehensive understanding of a company and its potential for growth. This can provide investors with a more accurate picture of a company’s financial health and future prospects, allowing them to make better investment decisions. AI algorithms can also be used to develop predictive models for stock market performance. These models can take into account historical data, market trends, and other factors to forecast future stock prices. This information can be extremely valuable for investors, as it can help them identify stocks that are likely to rise in value and make informed investment decisions.

A further benefit of AI in investing is the ability to automate the trading process. AI algorithms can be programmed to make trades based on predetermined criteria, such as a specific stock price or market trend. This can save investors time and effort, as they no longer have to spend hours researching and making investment decisions themselves. It can also reduce the risk of human error, as AI algorithms are not subject to the same emotional or psychological biases as human traders. Despite the many potential benefits of AI in investing, there are also some concerns about the technology. For example, there is a risk that AI algorithms could be programmed to make unethical or illegal trades. In addition, there is a risk that AI algorithms could be vulnerable to hacking or other forms of cyber-attack, which could result in significant financial losses for investors.

Another concern is the potential for AI algorithms to exacerbate market volatility. If a large number of investors use AI algorithms to make trades, this could lead to rapid shifts in stock prices and market trends. This could result in increased volatility, making it more difficult for investors to make informed investment decisions. Despite these concerns, it is clear that AI has the potential to greatly impact the world of investing in the stock market. The technology has the potential to bring about many benefits, including faster and more accurate decision-making, better predictive models, and more efficient trading processes. However, it is important for investors to be aware of the potential risks associated with AI and to carefully consider how they use the technology in their investment strategies. In conclusion, the impact of AI on the stock market will likely be significant in the coming years. While there are still some uncertainties about the technology, it is clear that AI has the potential to bring about many benefits for investors. However, it is important for investors to be aware of the potential risks associated with AI and to use the technology carefully in their investment strategies. As AI continues to evolve, it will be interesting to see how it continues to impact the world of investing and the stock market as a whole

More information on the first three of these tactics – the “phantom riches” tactic, the “social consensus” tactic, and the “credibility” tactic – and how investors can avoid them can be found in Part One of this two-part series.

Here, we will consider the remaining two most common investment fraud tactics identified by FINRA and the SEC: the “reciprocity” tactic and the “scarcity” tactic.

The Reciprocity Tactic

Under the reciprocity tactic, supposed investment professionals will lead investors to believe that if the investor participates in the investment opportunity at hand, they will receive an outsized benefit relative to what they put in, while the investment professional purports to take some sort of a hit. [1]

In the real world this tactic can look like a fraudster offering an investor half off on a given investment opportunity, along with a break on usual commission, so long as the investor buys in immediately. [1]

Like many common investment fraud tactics, the reciprocity tactic is yet another example of an investment opportunity that appears too good to be true. The supposed investment professional or stockbroker puts pressure on the investor by offering what looks to be a great deal in exchange for the investor’s immediate buy-in, depriving the investor the critical chance to investigate and confirm the credibility of either the professional or the investment opportunity.

The best way to avoid falling prey to such a scheme is for investors to understand that authentic investment opportunities will not be sold using coercive tactics such as this one. Investors should never make an investment decision before taking the opportunity to fully vet the professional offering the opportunity and the opportunity itself.

The Scarcity Tactic

Similarly, the scarcity tactic also unduly coerces investors into taking immediate action with their dollars so as to “take advantage” of a seemingly can’t-miss investment opportunity. In reality, when this tactic is offered, investors should only expect to lose money, not gain.

When fraudsters employ this tactic, they convince prospective investors that if they do not buy into the investment opportunity immediately or very soon, the remaining units will be taken up by other, competing, investors. [1]

Investors should be on the lookout for communications implying that there are only a small, finite, number of units left to invest in, and that these units are going fast. [1] Any implication that the investment is scarce should alert investors to exercise heightened due diligence in determining whether the investment opportunity is legitimate.

Unfortunately, tactics employed by investment fraudsters continue to improve and shift over time. Luckily, investors can be their own first line of defense. With the help of online resources to validate the licensing status of investment professionals and investment opportunities, along with an understanding of the most common tactics and red flags to be aware of, investors can avoid falling prey to investment fraud.

Source:

[1] https://www.finra.org/investors/protect-your-money/avoid-fraud

Per the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC), three of the most common investment fraud tactics employed by scammers in the United States are known as the “phantom riches” tactic, the “source credibility” tactic, and the “social consensus” tactic. [1]

Each tactic essentially functions by allowing the fraudster to build a false narrative surrounding their supposed investment opportunity, thereby garnering interest and ultimately investment dollars from unsuspecting investor victims.

The Phantom Riches Tactic

The “phantom riches” tactic involves enticing investors with the prospect of gaining an unattainable increase in wealth. [1] An example of this tactic in practice would be a fraudster telling a prospective investor “most of our investors are making $8-9,000 a month off this deal.” [2]

This tactic works by offering investors an opportunity they feel is simply too good to pass up. When fraudsters use the phantom riches tactic, they are lying about the investment opportunity so as to trick investors not into thinking the opportunity is too good to be true, but instead that the opportunity is too good to turn down.

Often, the fraudster also makes the alleged opportunity appear exceedingly easy for investors to become involved with. Prospective investors are led to believe not only that if they participate, their investment will earn them outstanding returns, but also that the investment opportunity requires almost no effort on the investor’s part.

In reality, the fraudster has fabricated the investment opportunity, and their promise of high returns will instead materialize as considerable losses to the investor.

The Source Credibility Tactic

When employing the source credibility tactic, fraudsters also engage in deceit, this time about their true identity and professional credentials. By communicating to the world that the fraudster is a graduate of a well-respected academic institution or has relevant professional experience and/or professional certifications and licenses, the fraudster places themselves in a respected societal position, albeit a patently fake one. [2]

Operating from this supposedly elevated social and professional tier, fraudsters have a much easier time convincing investors to fork over their money, and eventually lose it for good. While this tactic can be challenging to navigate, given the false impressions the fraudster is setting forth, there are many resources available online which prospective investors can use to confirm the identity and licenses actually earned by the purported professional.

The Social Consensus Tactic

Finally, the social consensus tactic involves stirring up investor interest in a scam by falsely stating that “everyone” or certain members of a group have already joined, and that those who have joined are making a great amount of money. [2] In reality, it is unlikely that many members of a group have joined the scheme – yet the mention of the community interest results in a greater sense of trust in the fraudster.

These tactics are just the first three of five main tactics that the SEC and FINRA warn investors to be aware of. Next week, this blog will cover the remaining two most common tactics used by investment fraudsters.

Remember that the first step in protecting assets is knowing the risks, like fraud, which they entail.

Sources: [1] https://www.finra.org/investors/protect-your-money/avoid-fraud [2] https://www.sec.gov/investor/seniors/outsmarting.pdf

Yet there is one investment risk – the risk of fraud – which at first glance seems uniquely difficult to mitigate. Fortunately, there are indeed several steps investors can take to protect their hard earned investment dollars from fraud.

In the United States, the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) each offer investor resources for reducing the risk of investment fraud.

FINRA advises investors to follow three specific steps to avoid fraudulent schemes: staying informed about ongoing scams, thoroughly vetting the background of any investment opportunity or professional an investor chooses to engage with and keeping current with common tactics employed by fraudsters. [1]

Stay Informed With Investor Alerts

Importantly, both the SEC and FINRA issue periodic “investor alerts” which explain recent fraudulent investment schemes toward which investors should exercise caution. Investor alerts from the SEC can be found here, and investor alerts from FINRA can be found here. Vet the Investment Opportunity

investors should also thoroughly vet the background and credentials of any investment opportunity or professional they choose to engage with [1]

When it comes to vetting the background of investment professionals, FINRA first recommends directly asking whether the individual is licensed to sell the investment. [2] FINRA and the SEC also both offer online resources to help confirm whether the professional is indeed registered as required under law. [2]

These resources include repositories listing the financial professionals who are registered with federal and/or state agencies, as well as resources which indicate whether the individual has engaged in known fraudulent acts in the past. [2] Investors can also use these resources to determine whether the investment they are considering is registered with the SEC. A one-stop shop for each of these free resources can be found here. Keep Up to Date on Common Fraudulent Tactics

Finally, a third helpful strategy for keeping hard earned investment dollars safes is staying aware of common investment fraud schemes along with “red flags” that often signal fraudulent activity.

Investors should always keep in mind that if an investment opportunity seems “too good to be true,” then it likely is.

In particular, common red flags to be on the lookout for include mentions of guaranteed or overly consistent returns, particularly complex investment strategies, and “pushy” salespeople. [3] Often, fraudsters will employ high-pressure sales tactics to present supposed investment opportunities as exciting ways to make large sums of money with comparably little effort required from the investor. [3]

Investors should also keep in mind that many investments are inherently risky. If a supposed investment professional advertises a new investment opportunity with no risk at all, or if any other red flags arise, it is likely time to dig deeper into the specifics of the investment opportunity.

Exercising careful attention to both the supposed processional and the investment they are offering is often the best strategy to protect investments avoid falling victim to a fraudulent investment scheme.

Sources: [1] https://www.finra.org/investors/protect-your-money [2] https://www.finra.org/investors/protect-your-money/ask-and-check [3] https://www.finra.org/investors/protect-your-money/avoid-fraud/red-flags-fraud

The SEC’s complaint charged Justin Costello with violations of the anti-fraud provisions of several federal securities laws as a result of his role in this massive fraudulent scheme. [2]

While the SEC’s complaint alleges a broad web of fraudulent investment schemes, Costello mainly operated through deceit about his background, his qualifications, and the value of the companies he owned and operated. [2] Throughout the span of his fraudulent schemes, Costello was never registered with the SEC as a broker-dealer nor investment adviser. [2]

Costello’s success in bringing in clients largely rested on his fabricated credentials. Costello falsely stated to both the public in a press release and to the SEC in a Form 8-K filing that he graduated from the University of Minnesota and the Harvard Business School. In reality, Costello graduated from neither of these schools, but instead from Winona State University. [2]

Costello also alleged to prospective and existing clients that he was “the youngest hedge fund billionaire ever,” that he was a veteran of the United States Special Forces, and that he was licensed in money and investment management. [2] Each of these assertions was false yet helped to build Costello’s reputation and lure in unsuspecting clients. [2]

Once Costello secured advisory clients, he operated his fraudulent scheme by exercising complete and independent control over their brokerage account investments to invest only in securities of companies he owned.

In one case, Costello instructed a client never to log into their brokerage account while he managed it. While Costello managed all of the trades in the account, he advised the client that should the client’s brokerage firm ever reach out, the client should lie and state that the client had made the trades, not Costello [2]

Eventually, the client’s initial brokerage firm terminated its business with the client. Costello then convinced the client to allow him to manage another $1.27 million in a new brokerage account with a different brokerage firm, maintaining the same level of unfettered control. [2]

Costello’s independent control over the client’s brokerage accounts played directly into his fraudulent scheme. While he told the client that he would invest in a diversified portfolio of securities, Costello instead invested and traded only in microcap companies owned by him or in which he personally invested, presenting serious insider trading implications.

Costello began managing these brokerage accounts in 2019, and by 2022, the millions of dollars he was originally trusted to manage had dwindled downward by approximately 97% as a result of his fraudulent insider trading scheme. [1]

This is but one of several simultaneous fraudulent schemes Costello ran between 2019 and 2020. The SEC is seeking injunctions, disgorgement, civil penalties, and a prohibition against Costello ever serving as a broker dealer in the future. [2]

Protecting yourself from a fraudulent stockbroker may seem daunting, but the SEC’s Office of Investor Education and Advocacy publishes free resources on Investor.gov to help conduct reviews of a broker-dealer’s background before engaging in business.

Furthermore, if you think your stockbroker may have misrepresented their qualifications, license, or has engaged in fraudulent investment practices, the attorneys at Savage Villoch law can assist you – reach out for your consultation today.

Sources:

[1] https://www.sec.gov/news/press-release/2022-178

[2] https://www.sec.gov/litigation/complaints/2022/comp-pr2022-178.pdf

Per the SEC’s September 29, 2022 complaint, Bradley Goodbred, a registered investment adviser based in Illinois, misappropriated a total of $1,295,000 from a 97-year-old client between 2012 and 2021. [1] While the defendant, Goodbred, returned a portion of this money, his client still lost more than half a million dollars as a result of his fraudulent actions. [2]

According to the SEC’s complaint, Goodbred became the client’s investment adviser sometime before 2006, when the client and her husband were searching for a trusted, long-term financial adviser to help guide financial decisions in the event that the client’s husband passed away. [1]

After the client’s husband’s death in 2006, Goodbred became a “friend and confidant” to the client, who had no next-of-kin and who lived by herself. [1] By 2013, Goodbred had been appointed as the investment adviser for the client’s trust account and as power of attorney for purposes of the client’s health and property. [1]

As an adviser, and with a substantial amount of power over the client’s health and finances, Goodbred owed fiduciary duties to the client including the duty to act in her best interest and the duty to act towards her in good faith. [1]

The SEC alleges that Goodbred violated these duties when he misappropriated large sums of the client’s financial resources. Goodbred committed these fraudulent acts by soliciting the client to transfer more than $1 million from 2012 to 2021 to a business he owned. [1] Goodbred then purported to invest the client’s funds in real estate investment trusts (“REITs”) on the client’s behalf. [1]

In reality, Goodbred did not invest any of the client’s money in REITs on her behalf. [1] He instead used the money to cover personal and business expenses which bore no relation to the purported investments. [1] These expenses included income taxes, automobile loans, and credit card debt incurred by Goodbred and his wife. [1]

Today, the client suffers from dementia and is cared for by a court-appointed guardian. [1] Goodbred’s fraudulent scheme was only uncovered when the financial institution he worked for received a complaint suggesting that Goodbred was “exercising inappropriate discretion over the Client’s trust account,” for which an investigation was launched. [1]

The investigation resulted in Goodbred’s firing from the financial institution, and ultimately these charges by the SEC. [1]

Through its complaint, the SEC alleges 5 counts of federal securities fraud and seeks injunctions against Goodbred and appropriate civil penalties, ultimately to be determined via a jury trial. [1]

This case indicates the dangers posed by financial advisers who obtain undue power over their client’s financial resources and ultimately use it for their own betterment. Here, the client and her husband believed they had hired a trustworthy financial adviser to guide them as they both advanced in age. Instead, they became victims of more than $1 million in theft.

All investment advisers should be thoroughly vetted, and clients should do all they can to monitor the activity of their advisers, or otherwise appoint a neutral third party without direct power over the finances to assist in monitoring.

If you think you have been taken advantage of by your financial or investment adviser, the trusted attorneys at Savage Villoch law are ready to help. Reach out for your consultation today!

Sources:

[1] https://www.sec.gov/litigation/complaints/2022/comp25536.pdf

[2] https://www.sec.gov/litigation/litreleases/2022/lr25536.htm?utm_medium=email&utm_source=govdelivery

On September 20, 2022, the SEC fined financial services giant Morgan Stanley Smith Barney (“MSSB”) $35 million for failing to adequately protect its customer’s records and personal identifying information (“PII”). [1] The fine was entered via a settlement between the SEC and MSSB, through which MSSB has agreed to pay a civil penalty for the SEC’s charges without admitting to nor denying the violations. [2]

MSSB is a subsidiary of Morgan Stanley and focuses on wealth management services for clients ranging from individuals to large corporations. [3] More specifically, MSSB is the broker-dealer designation for the group more commonly known as Morgan Stanley Wealth Management. [3] During the second quarter of 2022, Morgan Stanley Wealth Management recorded $5.7 billion in net revenues. [4]

Through its order, the SEC alleged that MSSB engaged in two separate violations of federal securities laws. First, the order alleged that MSSB willfully violated the Safeguards Rule, a federal regulation which requires broker-dealers to adopt written policies and procedures regarding safeguards for the protection of customer data. [1]

Second, the order alleged MSSB’s willful violation of the Disposal Rule, a federal regulation requiring broker-dealers which possess consumer data to “take reasonable measures to protect against unauthorized access to, or use of, the information in connection with its disposal.” [1]

MSSB’s alleged violations occurred in connection with its effort in 2016 to decommission two data centers (the “2016 Data Center Decommissioning”). [1] To accomplish the decommissioning process, MSSB contracted with one approved vendor, referred to as “Moving Company,” to “pick-up, transport and decommission” devices from the MSSB data centers. [1] While Moving Company was one of MSSB’s approved vendors, MSSB never approved any sub-vendors for the decommissioning process. [1]

Despite this fact, Moving Company worked jointly over the course of the decommissioning process with two separate, unapproved sub-vendors – “IT Corp A” and “IT Corp B.” [1] Initially, Moving Company collected devices from the data centers and delivered them to IT Corp A. IT Corp A would either complete the required data-wiping processes and resell the devices, or destroy the devices altogether. [1] Inventories were kept, and MSSB received information about the wiped and destroyed devices from Moving Company. [1]

Not long after the decommissioning began, however, Moving Company ceased working with IT Corp A in favor of IT Corp B. Per the SEC’s findings, Moving Company sold the MSSB devices to IT Corp B under the guise that the devices had already been wiped of any MSSB data. In reality, the devices had not been wiped, yet IT Corp B gained possession of the devices and began selling them to downstream customers. [1]

MSSB became aware of this data breach when an IT consultant from Oklahoma emailed MSSB to inform them that it had purchased hard drives via an online auction, and that the hard drives contained accessible MSSB customer data. [1]

In all, the SEC’s order seeks to hold MSSB accountable for its failure to properly safeguard the sensitive data its customers entrust it with. Per the SEC’s findings, MSSB failed to adequately vet the data wiping and destruction processes of its approved vendor, Moving Company, and further failed to maintain its own internal policies and procedures to ensure customer data is disposed of properly. [1]

This situation serves as a cautionary tale. While MSSB contends that it has received no reports of customer data being misused as a result of this breach, the company still clearly has room for improvement in maintaining the security of its customer data. No matter the size of the broker, investors should be wary of the safety of their personal data.

Have concerns about a breach of your personal data? Reach out to one of the trusted attorneys at Savage-Villoch Law for a consultation.

Sources:

[1] https://www.sec.gov/litigation/admin/2022/34-95832.pdf

[2] https://www.sec.gov/news/press-release/2022-168

[3] https://www.morganstanley.com/content/dam/msdotcom/en/about-us-ir/shareholder/2q2022.pdf

Along with the sharing his viewpoint that the majority of crypto tokens and cryptocurrency intermediaries are subject to federal securities laws and regulations, Gensler also shared a quote from the first SEC Chairman, Joseph Kennedy: “No honest business need fear the SEC.” [1] Gensler’s repeated reference to this quote supported his overarching message that regulatory oversight of crypto tokens and intermediaries should be viewed as a positive for the market rather than a negative.

In first speaking on crypto tokens themselves, Gensler noted that the purchase and sale of these tokens are subject to federal securities laws so long as the tokens meet the statutory definition of a security. Gensler cited Congressional purpose and history as well as the Supreme Court’s “Howey Test” in support of his view. [1]

Gensler pointed out that Congress intended a broad scope for the definition of a security, citing Justice Thurgood Marshall’s statement that “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.” [1]

Gensler then turned to the Supreme Court’s “Howey Test,” which sets forth the factors that comprise one form of security: an “investment contract.” [1] In line with the Howey Test, Gensler concluded that, because crypto investors buy and sell crypto tokens with the expectation of “profits derived from the efforts of others in a common enterprise,” the tokens are indeed investment contracts; thus, they are securities subject to federal securities laws.

Beyond discrete crypto tokens, Gensler also stated that the intermediaries, which host the exchange of crypto tokens, must also likely register with the SEC in order to comply with federal securities laws. Crypto intermediary platforms “match orders in crypto security tokens of multiple buyers and sellers using non-discretionary methods,” and this meets the legal test for regulatory oversight.

While Gensler views the majority of crypto tokens and cryptocurrency intermediaries as subject to regulation and oversight by the SEC, his remarks sought to underscore the merits of such regulation for all market participants.

He noted that those offering crypto tokens or operating crypto intermediary platforms should have open dialogues with the SEC to help ensure that any token or platform which legally requires registration with the SEC may avoid potential legal issues in the future.

Gensler also emphasized the important investor protections offered by SEC oversight of crypto tokens and intermediaries. In concluding his remarks, Gensler highlighted his view that crypto simply offers a new technology for the issuance and trading of securities, and the adoption of a new technology should not deprive the investing public of the critical benefits offered by required disclosures and registration with the SEC.

Although Gensler’s remarks are not representative of official guidance from the SEC, they shed light on the importance of regulating crypto markets, specifically as they expand in popularity and adoption by the general public. With regulatory oversight under existing federal securities laws, crypto investors gain important assurance of the legitimacy and safety of their investment portfolios.

Source:

[1] https://www.sec.gov/news/speech/gensler-sec-speaks-090822

The jury convicted Schena of three counts of securities fraud, two counts of payment of kickbacks, one count of conspiracy to pay kickbacks, two counts of health care fraud, and one count of conspiracy to commit health care fraud and conspiracy to commit wire fraud. [1] While he won’t be sentenced until early 2023, Schena faces a maximum of 20 years for each count of securities fraud alone. [1]

While this case draws quite a few parallels to the early-2022 trial and eventual conviction of Elizabeth Holmes, the founder of Theranos, it has thus far drawn far less media attention. [2] Still, Schena’s conviction provides another important glimpse into the dangers investors may face when dealing with alleged cutting edge or “revolutionary” technologies.

Schena was the president of Arrayit Corporation, a publicly traded company based in California’s Silicon Valley. [1] On the securities fraud counts, the evidence at trial convinced jurors of Schena’s elaborate scheme to defraud investors through false and misleading statements about the company’s operations and technology, along with failures to release Arrayit’s financial disclosures as required by the Securities and Exchange Commission (“SEC”). [1]

Arrayit purported to offer blood testing via a “revolutionary technology” that could use one drop of blood to test for a wide array of diseases. [1] Schena even dubbed himself the “father of microarray technology,” as part of his efforts to “lull” concerned investors into a sense of comfort even as they doubted the company’s legitimacy. [1]

Schena and his publicist further leveraged false press releases and tweets, purporting to evidence partnerships with governmental entities and large companies, as part of the scheme to build false investor confidence in Arrayit. [1] As some investors began expressing doubt in Arrayit’s technological capabilities, Schena continued to falsely represent that the company’s valuation sat above $4 billion. [1]

Separate and apart from Schena’s investment fraud scheme, the jury also concluded that Schena perpetrated a scheme involving illegal kickbacks and health care fraud. [1] These schemes involved allergy testing, which Arrayit would run on every single one of its patients irrespective of medical need. [1]

While Arrayit’s allergy tests were not even diagnostic tests to begin with, the company touted their accuracy in diagnosing allergies, and paid kickbacks to marketers in order to obtain additional blood samples to test. [1] Arrayit then billed Medicare and commercial insurers for these allergy tests at a rate higher than any other lab in the United States. [1]

Finally, in 2020 when the Covid-19 pandemic hit, Arrayit pivoted toward marketing its own Covid-19 test. [1] Despite the Food and Drug Administration’s refusal to conclude that Arrayit’s Covid-19 blood test was accurate enough to receive an Emergency Use Authorization, Schena continued to claim that Arrayit’s test surpassed PCR tests in accuracy. [1]

In all, Schena defrauded investors of more than $77 million through his various fraudulent schemes related to Arrayit. [1] This case is yet another illustration of the pitfalls investors can face when making investments in start-ups or other companies touting new and innovative technologies. Please reach out to a trusted attorney at Savage-Villoch if you have questions.

Source: [1] https://www.justice.gov/opa/pr/medical-technology-company-president-convicted-77-million-covid-19-and-allergy-testing-scheme [2] https://lawandcrime.com/covid-19-pandemic/federal-jury-convicts-tech-executive-in-first-of-its-kind-covid-19-testing-related-securities-fraud-he-even-lied-about-being-a-nobel-prize-candidate/

The Investor Alert, released by the SEC’s Office of Investor Education and Advocacy, highlights the unique dangers investors face when evaluating investment prospects and making investment decisions via social media platforms or over the internet. In particular, the alert warns investors that investment information portrayed on social media may be “inaccurate, incomplete, or misleading.” [1]

Furthermore, the alert cautions that the broad-reaching and low-cost nature of social media can create “false impression of consensus or legitimacy” of investment prospects, creating the illusion that far more people are making the investment than truly are. [1]

More specifically, the Investment Alert sheds light on several common schemes used by fraudsters to target and take advantage of unsuspecting investors online. These schemes include impersonation schemes, “crypto” investment scams, and romance scams. [1]

Impersonation schemes are often, and easily, perpetrated over social media because social media platforms allow fraudsters to create false or misleading profiles. [1] For example, a fraudster might create a social media account impersonating a legitimate broker or investment adviser. [1] The fraudster can then use their false identity to convince investors to make investment decisions which enrich the fraudster at the investor’s expense.

As a result, social media users should be wary of investment opportunities communicated solely over social media platforms. Investors are urged to look out for typos within a supposed broker or adviser’s profile page or messages, as well as by considering whether or not the social media platform has “verified” the user as person they claim to be. [1]

Crypto investment scams are also on the rise, given the continued popularity of cryptocurrencies and their relative novelty. These scams often sound “too good to be true” and may take the form of a Ponzi or pyramid scheme involving crypto or the blockchain, promising low or no risk with high investment returns. [1] If an investor chooses to invest in cryptocurrency, the credentials of the investment opportunity can be investigated by using the search tool provided by the investor.gov website. [1]

Finally, online romance scams have also become increasingly prevalent in recent years. This type of scheme typically starts with a fake dating app or social media profile, which reaches out to a victim to begin the trust-building process. Once a relationship of trust has been created, the fraudster behind the fake profile will begin to inform the victim about supposedly lucrative cryptocurrency or other investment opportunities. [1]

Because trust has been built over time, victims may be more likely to believe the fraudster and funnel their hard earned money into one of these fraudulent investment scams.

Along with providing background information on each of the fraudulent schemes discussed here, the SEC’s Investment Alert provide additional information on market manipulation schemes and community-based investment fraud schemes. [1]

The overarching takeaway from this Investor Alert is clear: fraudsters are increasingly using social media and other online platforms to take advantage of unsuspecting investors, and their schemes are only becoming more creative.

Investors should remember that online platforms allow fraudsters to easily fabricate and disperse misleading investment information to the masses. Often, the best way to protect an investment is through careful research into any investment opportunity. Per the Investor Alert, a heavy dose of skepticism when an opportunity sounds “too good to be true” goes a long way.

If you have a question or concern about an existing investment or investment opportunity, reach out to the attorneys at Savage-Villoch law.

Sources: [1] https://www.sec.gov/oiea/investor-alerts-and-bulletins/social-media-and-investment-fraud-investor-alert