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.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
In what could be an interesting theme for an episode of “Hawaii Five-0,” the Securities and Exchange Commission has brought fraud charges against a Honolulu woman who posed as an investment banker and solicited some $250,000 from investors through Twitter, Facebook and other social media, as well as Skype.
“As alleged in our case, [Keiko] Kawamura used social media to ensnare investors and raise money to support her lifestyle,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office, in a press release shared Tuesday.“Investors should beware of fraudsters who use social media to hide behind anonymity and reach many investors with little to no cost or effort.”
The SEC found the 27-year-old presented herself as “an investment and hedge fund expert” with Kawamura Financial, though she had no prior trading experience. She conducted this scheme from December 2011 through June 2012, when she raised about $200,000 from at least seven investors for an investment program that had a purported performance fee of 20% of profits.
In the first scheme, she posted screenshots of brokerage account statements on Twitter and suggested she had produced “incredible investment returns” with her hedge fund, regulators say. The account statements, though, were not hers, and she spent money obtained from investors on living expenses and luxury trips to Miami and London, as well as on options she invested in and “lost everything.”
In another scheme, Kawamura set up a subscription service for investment advice and “falsely told subscribers that she had been in the investment-banking industry for nearly a decade and had achieved 800% returns in her personal brokerage account,” according to the SEC.
This scheme took place from August 2012 to February 2014, when Kawamura made some $50,000 from about 70 individuals via her website, which charged monthly fees.
Regulators have yet to determine any remedial action or financial penalties in their case against Kawamura.
Kawamura used her Twitter account to post screenshots of portions of a brokerage account and attract followers.
“In fact, the screenshots reflected particular returns on unusually successful trades and/or trading days from her boyfriend’s brokerage account and were not indicative of the performance of the trading in her account,” regulators explained. “At the time she posted the screenshots, Kawamura knew that her trading had not performed at the level indicated by the screenshots.”
Despite losing the roughly $55,000 she actually did invest, Kawamura told investors she was “achieving excellent returns on their investments” and would provide some investors with false tax documents showing investments.
In August 2012, Kawamura set up a website, kawamurafinancial.com, and then promoted it “primarily through social media, including Twitter and Facebook,” the SEC says.
Kawamura used the website to give “investment advice” to members who paid monthly fees of between $94.95 and $174.95.
“All subscribers received access to, among other things, a locked Twitter account that Kawamura used to provide recommendations on when to sell or purchase particular stocks and options,” the SEC noted.
She claimed to have been a wealth-management specialist at a “major financial institution” and have more than 10 years of industry experience. “At the time she created her website, Kawamura knew this was false,” according to the SEC. “She has never worked in the investment banking industry and has never worked for any financial institution.”
In addition, Kawamura falsely claimed on her site that “her personal IRA account is up almost 800% YTD (2012),” though at the time she had lost all funds in the account by trading and spending over a two-month period.
The Kawamura also gave website subscribers access to one-on-one advice over Skype’s instant message service for “real-time” tips on stocks and options at a cost of $174.95 per month.
A public hearing will take place on the matter over the next 30 to 60 days, with a decision expected over the next 10 months.