RIA Compliance Blog
The Securities and Exchange Commission (SEC) recently filed a cease-and-desist order against an Illinois man, Anthony Fields, for scamming investors with a fictitious securities offering. Fields attempted to sell more than $500 billion in securities using various social media websites, including LinkedIn.
Fields claimed to be a representative of a “leading institutional broker-dealer” through his firms: Anthony Fields & Associates and Platinum Securities Brokers. He was not registered as a broker/dealer with the SEC nor was he licensed as an associate with a registered broker/dealer.
The SEC has claimed that Fields violated numerous securities regulations. Allegedly, he promoted fictitious bank guarantees by setting up an unfunded investment adviser and an unfunded broker-dealer. He registered both of these with the SEC; however, he did so by filing false applications in March 2010. He also failed to maintain adequate books and records or carry out proper compliance procedures. Finally, he overstated his assets under management by claiming he had $400 million when, in actuality, he had none.
As a result of this incident, the SEC also issued an Investor Alert intended to promote investor protection and help investors identify and avoid fraud used through social media.
The SEC’s action signals a heightened level of surveillance to legitimate investment advisors and scam artists alike. Registered firms should take care to assure their social media practices are sound and compliant and that there is supervision in place to detect and prevent this type of fraud.
Fraudsters have begun using social media to start fraudulent schemes. There are many reasons why this method is attractive to these types of criminals. First of all, they are able to contact a large number of people without incurring high costs. Secondly, it is easy to form a webpage that looks legitimate. This makes investors believe in the legitimacy of the transaction and more willingly send their money. Finally, it can be difficult to discover the account holders that use the social media. This makes it more difficult to track down those people actually responsible for the scheme. Due to these issues, investors need to take extra precautions before making investments through social media outlets.
Some of the tips to protect investors addressed in the Alert include:
- Be wary of unsolicited offers to invest
- Look out for common red flags such as: it sounds to good to be true, the promise of guaranteed returns, and the pressure to buy right now
- Look out for “affinity fraud” which preys on members of identifiable groups through outlets such as chat rooms.
- Be thoughtful about privacy and security settings
- Ask questions and check out everything
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.