More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
The Securities and Exchange Commission’s Office of Investor Advocacy issued an investor alert on Wednesday warning about potential scams associated with investment seminars that claim to teach investing strategies that offer quick money by trading securities.
SEC staff warns in the alert that fraud promoters may use “misleading or untrue statements to lull investors into purchasing expensive products such as trading software or classes.” Investors, the SEC says, should be prepared to recognize and avoid some of the potential fraudulent conduct they may encounter at any investment seminar that purports to teach investors how to trade securities.
The SEC cites recent examples of trading seminar scams:
The SEC filed a complaint against the defendants alleging that the company made false and misleading statements to induce investors into purchasing their trading products. BetterTrades sold products designed to teach investors how to trade options, including seminars, workshops and software that facilitates options trading. The complaint alleges that BetterTrades’ instructors claimed to be highly successful options traders that used BetterTrades’ trading strategies, when in fact these instructors’ wealth came from their sales of BetterTrades’ trading strategies and products. The SEC settled this matter.
The SEC filed a complaint against the defendants alleging that they made false and misleading statements to induce investors into purchasing their trading products. Investools sold instruction, software and personal coaching to investors who wanted to learn how trade options and other securities. The complaint alleged that two employees of Investools misleadingly portrayed themselves as expert investors who made their living trading securities in order to induce investors into believing they would also become successful traders if they purchased Investools trading products. The SEC settled this matter.
The SEC alert also lists signs of trading seminar scams, which include:
- Claims that trading strategies are “easy” or “simple.” Trading strategies are not “simple” or “easy.” Securities transactions occur in complex financial markets. Investors should be skeptical of anyone making those kind of claims.
- Be mindful of “guaranteed” returns. Trading any type of securities carries some degree of risk, and the level of risk typically correlates with the return an investor can expect to receive. Low risk generally means low yields, and high yields typically involve higher risk. Fraud promoters often spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can't miss.” Don't believe it. High returns represent potential rewards for investors who are willing and financially able to take big risks.
- High-pressure sales tactics. Fraud promoters often use high-pressure sales tactics to get investors to buy their trading products and classes without thinking it through. They might claim there are only a few spots left or that getting in immediately will allow investors to see the greatest returns. Any reputable promoter of trading products or classes will let investors take their time to do research and will not pressure them for an immediate decision.
- Sounds too good to be true. Generally, if a strategy for trading securities sounds too good to be true, it probably is. No strategy for trading securities is fool-proof.
The SEC also recommends that investors do their homework before attending a seminar.
Investors should research the people or company promoting the investment seminar as well as the trading products or classes being sold at the seminar to see if they have any history of complaints, fraud, or criminal activity.
Investors can check-out speakers at seminars through the following resources:
- For all speakers, start by checking an Internet search engine.
- For speakers that are broker-dealers, use FINRA’s BrokerCheck website.
- For speakers that are an investment adviser, use the SEC’s Investment Adviser Public Disclosure website.
- For all speakers, also contact your state securities regulator. Investors can find the contact information for their state securities regulator at the North American Securities Administrators Association’s website.