More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
The Financial Industry Regulatory Authority on Wednesday issued an investor alert warning against scams that promote gold stocks.
Called ‘Gold’ Stocks—Some Investments Mine Your Pocketbook, the FINRA alert cautions investors to beware of investment scams that promote gold stocks. It also provides information on how to invest in legitimate gold investments.
As the price of gold bullion skyrockets to record levels, a rash of tweets, blogs, websites and YouTube videos has focused on the allure of investing in gold.
While there are legitimate gold investments discussed online, “FINRA is concerned that some investors may fall prey to gold-related investment scams,” the largest non-governmental regulator for U.S. securities firms said in its alert.
In an interview with AdvisorOne on Tuesday, S&P gold equity analyst Leo Larkin said the run-up in gold prices may be overplayed in a heated market. “We like gold stocks. We’re bullish on gold. However, at the current levels, we think gold is probably a little overextended in price,” Larkin said.
Gold scams may make inflated claims about the stocks of gold mining companies whose stock value is often based on gold reserves that are difficult to estimate, much less verify. For example, according to FINRA, the Securities and Exchange Commission took legal action against a mining company based in Florida for false press releases claiming that a mining project in Ecuador contained gold reserves worth more than $1 billion.
Gold may also be touted in free lunch seminars and pushed by what FINRA calls “boiler room operations.” The SEC has already charged six individuals for running a recent Ponzi scheme that used investment seminars to bilk 3,000 American and Canadian investors out of $300 million.
In addition, the Commodity Futures Trading Commission has taken three actions against precious metals firms, including charging a boiler room telemarketing firm that purportedly bought more than $23 million of precious metals for customers.
"Con artists are using the run-up in the price of gold as a hook to part investors from their money,” said Gerri Walsh, FINRA's vice president for investor education, in a statement. “Investors should think twice before investing in any gold investment promising exponential returns, or any company that claims it is a buyout target for other mining companies.”
FINRA's investor alert cautions investors to watch out for gold investment pitches that:
- Claim to tie stock performance to the general rise in gold prices, because a rise in gold prices does not guarantee a rise in the price of a gold company's stock;
- Use scare tactics such as the threat of inflation or an economic meltdown;
- Make speculative claims based on a new reserve's proximity to an existing reserve;
- Center on a company that has changed its name or trading symbol to align it more closely with gold.