beware of foreign currency trading fraud

Beware of Foreign Currency Trading Fraud

Aug 31, 2020

Last week, the Commodity Futures Trading Commission (“CFTC”) announced charges against individuals in a  foreign currency Ponzi scheme targeting African immigrants. The alleged perpetrators Dennis Jali, Arley Ray Johnson, and John Frimpong were charged with participating in a 28 million Ponzi scheme by fraudulently soliciting funds from investors for the “1st Million Pool” through and on behalf of 1st Million LLC, Smart Partners LLC, and Access to Assets LLC. The CFTC complaint alleges that the defendants fraudulently solicited participants to trade in foreign currency (Forex) and digital assets such as bitcoin through pooled trading accounts controlled by Jali.   According to the CFTC, the defendants allegedly targeted members of church communities by portraying the 1st Million Pool as a means to obtain financial freedom and support charitable religious causes. As alleged, from 2017 to 2020, over 1000 participants contributed at least $28 million to the 1st Million Pool, often through entering “secure contracts” that falsely promised investors’ funds would be held in trust or escrow, used to trade Forex and bitcoin, and then returned in their entirety at the end of the pool participation term. The complaint alleges that the defendants misappropriated at least $7 million of 1st Million Pool funds and used it to pay for expensive cars, personal travel, and living and business expenses. The SEC also brought charges against Jali, Frimpong, and Johnson, who both directly and through their companies 1st Million LLC and The Smart Partners LLC, are alleged to have falsely told investors that their funds would be used by a team of skilled and licensed traders for Forex and cryptocurrency trading, promising risk-free returns of between 6% and 42%. The SEC’s complaint alleges that the defendants often targeted vulnerable African immigrants and exploited their common ancestry and religious affiliations. The SEC charges that Jali used investor funds to pay for, among other things, two luxury cars, private jet charters, airfare and hotels, extravagant retail purchases (including purchases at Gucci, Tory Burch, and Burberry), and a down payment for a house in Atlanta. Jali’s personal expenses were totally unrelated to cryptocurrency and Forex trading, and were contrary to the explicit statements to investors. Beware of Foreign Currency Trading Frauds Foreign currency trading fraud or Forex related scams are not new. In fact, the CFTC warns investors to be cautious when it comes to forex trading  as follows: The advertisements seem too good to pass up. They tout high returns coupled with low risks from investments in foreign currency (forex) contracts. Sometimes they even offer lucrative employment opportunities in forex trading. Do these deals sound too good to be true? Unfortunately, they are, and investors need to be on guard against these scams. They may look like a new sophisticated form of investment opportunity, but in reality, they are the same old trap—financial fraud in fancy garb. Forex trading can be legitimate for governments and large institutional investors concerned about fluctuations in international exchange rates, and it can even be appropriate for some individual investors. But the average investor should be wary when it comes to forex offers. The CFTC and the North American Securities Administrators Association […]

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expungement claim

FINRA Charging Brokers More for Expungement Claims

Aug 24, 2020

Starting September 14, 2020, brokers wishing to expunge information from their records will have to pay higher minimum fees to have their claims heard before the Financial Industry Regulatory Authority (“FINRA”). The SEC has recently approved FINRA’s request to amended its Arbitration Procedures for Customer and Industry Disputes to apply minimum fees in connection with requests for expungement of customer dispute information, whether the request is made as part of the customer arbitration or the broker files an expungement request in a separate arbitration (“straight-in request”). The amendments also apply a minimum process fee and member surcharge to straight-in requests, as well as a minimum hearing session fee to expungement-only hearings.  A Broker’s Record of Customer Complaints is Publically Available on BrokerCheck® Customer complaints and arbitration claims are reported through the Central Registration Depository (CRD®) system which is the national licensing and registration system used by the U.S. securities industry. The information in the CRD system is generally submitted by registered securities firms, brokers, and regulatory authorities in response to questions on the uniform registration forms including the U4 and U5 forms. Among other things, these forms collect administrative, regulatory, criminal history, and disciplinary information about associated persons, including customer complaints, arbitration claims, and court filings made by customers. Certain CRD information is publically available through a system called BrokerCheck®. BrokerCheck can be used by investors to make informed choices about the brokers and broker-dealer firms with which they may conduct business.  Brokers Can Seek to Get CRD Information Expunged Through FINRA  There are situations where brokers can have certain false information removed from their CRD system through a FINRA arbitration process. In order to balance the benefits of disclosing information about customer disputes to regulators and investors with the goal of protecting brokers from the publication of false allegations against them, a process for expungement was established. This process, under FINRA Rule 2080, allows for the expungement of claims where the allegations made about the broker are factually impossible or clearly erroneous.  There are two ways through the FINRA process that a broker can seek expungement of customer dispute information: 1) the broker or his or her firm (called a “requesting party”) may seek expungement through the FINRA arbitration process by making the request during a customer arbitration; or 2)  the broker may request expungement by filing a “straight-in request,” which is a separate arbitration claim filed by the broker against a former or current member firm or the customer.  FINRA Raised its Filing Fee Mostly in Response to Straight In Requests FINRA implemented this new process because it became concerned about practices to avoid fees applicable to expungement requests, particularly straight-in requests. This was because brokers who were filing straight-in requests often added a small monetary claim (usually, one dollar) to the expungement request to reduce the fees assessed against the broker and qualify for an arbitration heard by a single arbitrator. Typically, an expungement request would be considered non-monetary in nature since it is generally just a request to remove a customer complaint. Non-monetary claims had a higher filing fee than claims for damages, so this one […]

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teacher investment losses

Are You a Teacher With Investment Losses?

Aug 17, 2020

As recently stated by the Securities and Exchange Commission (“SEC”) in reaching a  $40 million settlement, “Too often educators are targeted with misconduct related to their investments. Our nation’s educators, and our Main Street investors more generally, are entitled to full and accurate information about the incentives and conflicts affecting their financial advisors.” In a scheme targeting teachers, the SEC recently charged VALIC Financial Advisors Inc. (VFA) in two actions for failing to disclose to Florida teachers and other practices that generated millions of dollars in fees and other financial benefits for VFA. VFA settled claims for failing to disclose payments to a for-profit entity owned by Florida K-12 teachers’ unions to exclusively promote its services to teachers. In a related action, VFA settled claims for failing to disclose conflicts of interest by receiving millions of dollars of financial benefits from advisory client mutual fund investments that were generally more expensive for the teachers than other mutual funds. VFA  settled all of the charges for approximately $40 million. In the settlement, VFA agreed to cap advisory fees for all Florida K-12 teachers participating in its advisory product in Florida’s 403(b) and 457(b) retirement programs, resulting in huge savings for thousands of Florida teachers. According to the SEC’s orders, VFA and its affiliate earned more than $30 million on the products it sold to Florida K-12 teachers.   VFA Did Not Disclose Payments Made in Exchange for Teacher Referrals In the first of the two orders, VFA is charged with undisclosed referral payments. VFA acted as a financial services vendor in almost every Florida school district. According to the SEC,  for 13 years VFA’s parent company, The Variable Annuity Life Insurance Company (VALIC), made payments to a company owned by the Florida teachers’ unions so that the entity would exclusively endorse VFA as its preferred financial services partner, excluding all competitors. In addition, VALIC supplied three full-time employees to  the entity owned by the teachers’ unions to act as “member benefit coordinators.” These so-called coordinators deceptively presented themselves as employees of the entity owned by the teachers union. The coordinators promoted VALIC and VFA to Florida K-12 teachers at benefits fairs and financial planning seminars and referred teachers to VFA for their investment recommendations.  The order charges that the member benefit coordinators increased VFA’s access to K-12 teachers in Florida and that VFA did not disclose that the teacher’s union-owned entity was paid to make VFA its preferred financial services provider. VFA Did Not Disclose Millions of Dollars It Received for Investing Teachers in Certain Funds The SEC separately charged VFA for failing to disclose its receipt of millions of dollars of financial benefits from client investments in mutual funds. According to the SEC, VFA’s wrap agreements stated that the advisory fee the client paid included the costs to execute securities trades. The order states that VFA chose new mutual fund investments for clients that were part it’s clearing broker’s no-transaction-fee program (NTF Program), and thus would not incur any transaction fee which VFA would be responsible for paying. The NTF Program mutual funds were generally more expensive than other mutual funds […]

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private placement investment

Lose Money in a Private Placement Investment?

Jul 20, 2020

Private Placements are Risky  As an individual investor, you may be offered an opportunity to invest in an unregistered offering or private placement. You may be told that you are being given an exclusive opportunity. You may have seen an advertisement regarding the opportunity. The securities involved may be, among other things, common or preferred stock, a REIT, a limited partnership, a membership interest in a limited liability company, or an investment product such as a note or bond. Private securities offerings are generally limited by law to certain institutional and high net worth investors called “accredited investors”. This limitation exists because of the greater risks involved in private offerings as compared to, for example, investing in a publicly-traded stock. Keep in mind that private placements can be very risky and any investment may be difficult, if not virtually impossible to sell.     A private placement is a securities offering that is exempt from registration with the SEC, and is also referred to as an “unregistered offering.” For the most part, private placements are not subject to some of the laws and regulations that are designed to protect investors, such as the comprehensive disclosure requirements that apply to registered offerings. Private and public companies engage in private placements to raise funds from investors. Hedge funds and other private funds also engage in private placements.  How do I know if I Bought a Private Placement or Unregistered Security? Unregistered offerings often can be identified by capitalized legends placed on the offering documents and on the certificates or other instruments that represent the securities. The legends will state that the offering has not been registered with the SEC and the securities have restrictions on their transfer. You should read the offering documents carefully to understand the risks involved, and the broker must make fair and balanced communications to you when  Earlier this month, the Financial Industry Regulatory Authority (“FINRA”) issued guidance to brokerage firms on communicating with retail customers about private placement offerings. It found that there were problems with the way firms communicated the risks of private placements to their retail customers making those communications misleading.  Private Placement Retail Communications Due to the fact that many brokers were not providing complete information on the risks of private placements when communicating with investors, FINRA provided guidance to brokers focused on disclosures regarding risk to the retail investor. The new guidance notes that in FINRA’s recent reviews of retail communications concerning private placement offerings found certain deficiencies including the failure of member firms to balance claims of potential investment benefits with the disclosure of risks.  FINRA reminded the brokers that  Rule 2210(d)(1) requires the following: 1. That all member firm communications be fair, balanced, and not misleading. 2. Communications that promote the potential rewards of investment also must disclose the associated risks in a balanced manner. 3. Communications must be accurate and provide a sound basis to evaluate the facts with respect to the products or services discussed. 4. It prohibits false, misleading, or promissory statements or claims, as well as and the publication, circulation, or distribution of communication that a member firm knows […]

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lost money options trading


Jun 29, 2020

With the market’s wild fluctuations in 2020, many novice investors were lured into the stock market with dreams of hitting it big in the stock market. The rise of discount brokerage firms has given many inexperienced investors easy access to the financial markets including the ability to trade options, sometimes exposing them to unlimited risk. Investors with little cash to invest are being educated by discount firms that they may be able to “leverage” their investment in stock by trading options. While some options strategies such as covered calls are relatively safe in that losses are limited, other options strategies can not only wipe out an investor’s account, but can expose that investor to a large debit balance in their account that they cannot afford to repay. Many have suffered investment losses in speculative options trading that they should not have been approved for. While brokerage firms require a customer to fill out questionnaires in order to be approved for options trading, there has recently been criticism of brokerage firms in allowing and approving inexperienced customers to trade options. The online platform Robinhood has committed to beef up its options eligibility requirements and investor education as a result of such criticism. Other firms, such as Fidelity Investments and Schwab have online investor education tools that attempt to inform investors who are trading options. Investors must meet certain criteria to be approved for specific levels of options trading.  Movements in the market caused many options investors who were new to options trading or sophisticated options strategies to not only suffer investment losses but additionally caused them to be on the hook for large margin debits in their accounts. Many did not fully understand or appreciate the risks to which they were exposed. The SEC Has Set Guidelines for Options Trading Approval Before you can trade options, your broker must approve your account for trading. You will have to first fill out your broker’s options agreement by providing information that will assist your broker in determining your knowledge of options and trading strategies, as well as your general investing knowledge and your financial ability to bear the risks of options trading. Based on the information you provide, your broker will determine whether options trading is suitable for you and, if so, what level of options trading may occur in your account. According to the Securities and Exchange Commission (“SEC”), the information you will need to provide in an options agreement generally includes: 1. Investment objectives such as capital preservation, income, growth, or speculation; 2. Trading experience such as the number of years you have been trading stocks and/or options, the number of trades you make per year, the average size of each trade, and information about your general knowledge of investing; 3. Personal financial information such as liquid net worth (investments easily sold for cash), total net worth, annual income, and employment information; and 4. An indication of what types of options you would like to trade. You Need Approval for Options Trading Levels The information you provide allows your brokerage firm to determine which option trading levels if any, you qualify […]

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Fraudsters Recommend Using Borrowed 401(k) Funds to Invest

Jun 22, 2020

The rules in place for taking early withdrawals from your retirement account for a hardship permanently reduce your retirement savings because ordinarily you are not allowed to put the money back into the retirement account after the hardship has passed and you must pay income tax on it. In addition, you must pay a 10 percent penalty if you withdraw funds before reaching the retirement age of 59½. THE CARES ACT Allows You to  Borrow From Your Retirement Account As explained by the Securities and Exchange Commission (“ SEC”), the CARES Act provides significant, temporary relief from these provisions for individuals who experience adverse financial consequences as a result of COVID-19 related events. The CARES Act allows qualified individuals impacted by the coronavirus pandemic to pay back funds withdrawn from a qualified retirement plan over a three-year period, and without having the amount recognized as income for tax purposes. The new law also temporarily waives the 10 percent early withdrawal penalty for coronavirus-related distributions (CRDs) made between January 1 and December 31, 2020.  In addition, the CARES Act exempts CRDs from the 20 percent mandatory withholding that normally applies to certain retirement plan distributions.  The CARES Act also doubles the ordinary retirement plan loan limits for qualified individuals to the lesser of $100,000 or 100 percent of the participant’s vested account balance. You will not owe income tax on the amount borrowed from the 401(k) if you pay it back within five years. In addition, qualified individuals with an outstanding loan from their plan (meaning a loan taken before the CARES Act was enacted) that has a repayment due between March 27 and December 31, 2020, can delay their loan repayments for up to one year. However, interest will continue to accrue on these delayed payments. This CARES Act benefits greatly reduce the costs of accessing funds held in retirement accounts, particularly for short term needs, such as severe economic hardship, when the investor expects to return the funds.   With every new source of cash, however, there are always fraudsters seeking to prey on victims.   Some unscrupulous individuals are using these CARES Act benefits, which are intended for those facing economic hardship from COVID-19, to promote high-risk, high-fee investments and other inappropriate products and strategies using borrowed retirement funds. These include products and strategies that have high fees and costs, are not designed to be temporary and, as a result, are unlikely to provide investors with the intended benefits of the CARES Act, particularly over time.  Ways to Protect Yourself from Fraudulent CARES Act Promotions If you are contacted by a professional who recommends that you withdraw money from your retirement savings to invest in securities—either through their firm or in your own self-directed investment account—be sure to first confirm whether they are licensed to give advice or sell investments.  You can verify the status of investment professionals and find out whether they have a history of customer complaints by using free tools from the SEC and FINRA. Also, always be on the lookout for the red flags of fraud: Unlicensed investment professionals Aggressive sellers who may provide exaggerated or false credentials Offers […]

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UBS yield enhancement strategy

“Low Risk” UBS Yield Enhancement Strategy Losses

Jun 15, 2020

Have you Lost Money in the YES Strategy? Have you been the victim of the supposedly “safe” UBS Yield Investment Strategy (“YES”)?  In truth, clients seeking safety should have said “NO” to the YES program. Using the “Iron Condor” trading strategy, a name invoking an invincible James Bond-like method of investment protection, UBS reportedly marketed the YES program to clients as a neutral or low-risk way to generate returns through sophisticated options trading strategy.  The YES program, which at one point in 2018 peaked with holdings around $6 billion, used a strategy that effectively borrowed against a clients’ holdings at UBS using the proceeds to trade options. The product is like a margin loan against existing holdings. The risk is that any losses could compel an investor to put in extra cash or securities. Although clients say that their UBS financial advisers told them the strategy was conservative, in reality, it often subjected the investors to risky bets that the markets would not take large swings— a gamble resulting in many investors losing 20% or more. It has been reported that the Securities and Exchange Commission is looking into how the YES program was marketed.  Just what is the Iron Condor Strategy? According to, the Iron Condor strategy uses four different options contracts with the same expiration date but different exercise prices, usually for an index (YES used European-style contracts for S&P 500 Index futures). Traders create two spreads by simultaneously selling calls and puts to generate income or premium, and buying calls and puts to hedge risk and contain potential losses. As long as the price stays within the breakeven points created by the spreads, the strategy makes money. However, sudden price swings can blow past the breakeven points of the Iron Condor, resulting in losses for most of the positions and a losing trade.  Brokers were Incentivized to Sell the UBS “YES” program It has been reported that UBS incentivized its financial advisers to promote the YES strategy with promises of big commissions paid from the large fees it charged. Investors paid a fee of up to 1.75% of their so-called “mandate” – meaning the amount of collateral dedicated to the strategy – whether the assets were actually traded or not. If, for example, a client authorized a $5 million maximum for YES, only $3 million of which was used, UBS would still charge the YES fees on the full $5 million. Those charges were layered on top of any fees clients may already have been paying on the underlying assets. Because of the large fees which were paid on YES program assets, even those which were not traded, UBS  financial advisors were encouraged to solicit mandates from clients which far exceeded the amounts clients intended to commit to YES.  Recent Market Swings Can Cause the YES Investments to Decline If you have lost money in a “Yield Enhancement Strategy”, or “YES,” investment, contact the offices of Former Wall Street lawyer Melanie Cherdack for a free consultation. Because she has been in the trenches as a former Wall Street attorney, investor fraud lawyer Melanie Cherdackand her team […]

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account churned

How Do I Know If My Account Was Churned?

Jun 8, 2020

What Is churning?  Although most stockbrokers and investment professionals act with the utmost professionalism, unfortunately, there are always a few “bad apples” who are in it just for themselves. When a broker is trading your account simply to make commissions on the trading, this is called churning. As an investor, you need to be able to detect whether your brokerage account has been or is still being churned, and know what to do about it if you suspect you have been the victim of this activity. According to the Securities and Exchange Commission (“SEC”) churning occurs when a broker engages in excessive buying and selling of securities in a customer’s account chiefly to generate commissions that benefit the broker. For churning to occur, the broker must exercise control over the investment decisions in the customer’s account, such as through a formal written discretionary agreement, although a broker can be deemed to have control without such an agreement-especially if the customer always accepts the broker’s investment recommendations. Frequent in-and-out purchases and sales of securities that don’t appear necessary to fulfill the customer’s investment goals may be evidence that your account is being churned.  Churning is both illegal and unethical. Churning violates both the Federal and state securities laws, as well as FINRA industry regulations and standards. Such conduct may also violate a myriad of other laws, such as those requiring that brokers act as fiduciaries and always put their client’s interests first. Churning also violates FINRA’s suitability rules. What Does Churning Stocks Mean? Churning Stocks There are a number of types of churning investors should watch for. The most common is when a broker makes excessive trades in stocks. Excessive trading generates commissions for the broker but provides very little if any, the benefit to the investor.  One way churning is measured is by how many times the equity in the account is traded in a year. This is called the “turnover ratio” The turnover ratio can be calculated a number of ways. The simplest turnover measure divides total security purchases by the average month-end equity balance and then annualizes the turnover ratio by dividing it by the number of years covered in the analysis. More simply put, if the average yearly value of your securities account is 100,000 and a broker executed 300,000 worth of trading in a year, the turnover ratio would be 3x. The other measure of churning is called the cost-to-equity ratio. Cost-to-equity ratios are calculated by dividing the costs such as commissions, fees, margin charges, mark-ups, and mark-downs incurred in an account by the average yearly equity. In this measure, cost-to-equity ratios calculate the portion of the average equity in the account that is eaten up by the trading costs. A simple example would be if the average equity of the account was 100,000 but the costs of the trading in the account were 10,000. In this example, the cost-to-equity ratio would be 10%–meaning that the customer would have to earn at least 10% on the trading before breaking even.  Churning Bonds, Mutual Funds, Annuities, and Life Insurance While most people think of churning in the […]

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unit investment trust

What is a Unit Investment Trust Switch?

Jun 1, 2020

Recently, the Financial Industry Regulatory Authority (“FINRA”) announced that it ordered Stifel, Nicolaus & Company, Incorporated

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Ponzi scheme

How To Spot a Ponzi Scheme?

May 18, 2020

What is a Ponzi Scheme? In a classic Ponzi scheme, the scammer uses funds from new investors to pay the so-called “ returns” to existing investors.

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