More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
The SEC has issued an investor alert to warn of impersonators who claim to be SEC employees for the purpose of defrauding individuals.
A recent spate of complaints has centered on a scam in which these phony SEC employees contact investors by phone and try to convince them that, if they deposit a sum of money (for instance, $1,500) into a specified account, they will receive a much larger sum. The SEC says that in some of these cases investors are promised $450,000. Some of these solicitations may use the name of a legitimate company and refer prospective investors to an operating website.
Of course the account has nothing to do with the SEC and all that happens is that the unwary investor loses the money.
The SEC stressed that it does not endorse investment offers, assist in the purchase or sale of securities, or participate in money transfers. Nor is the SEC affiliated with any sweepstakes, drawings, lotteries, or other types of events that feature prizes or winnings or cash windfalls.
Other ways to tell that someone is not a member of the SEC staff is that no legitimate SEC employee will call or email someone to:
- Seek assistance with a fund transfer;
- Forward investment offers to them;
- Advise individuals that they own certain securities;
- Tell investors that they are eligible to receive disbursements from an investor claims fund or class action settlement; or
- Offer grants or other financial assistance (especially for an upfront fee).
SEC staff also will not ask for detailed personal and financial information, such as shareholdings and PIN numbers, in unsolicited phone calls or emails.
The agency stressed that, if an individual is contacted by someone who claims to be from the SEC–or, for that matter, any other government agency–he or she should verify that person’s identity. The agency further advises people to use its personnel locator, (202) 551-6000, to verify whether the caller is an SEC staff member and to speak with him or her directly. Individuals can also ask whether the person calling is employed by the SEC, and request to speak with the staff member’s supervisor if there is such an employee. In addition, they can call the SEC at 800-SEC-0330 for general information.