FINRA recently released an Investor Alert on cryptocurrency scams. Investors should be wary of jumping into this “hot,” volatile sector, and do their research before handing over their money to a potential fraudster, or for a risky investment that they don’t understand.

In the last quarter, cryptocurrencies such as Bitcoin and Ripple have received a fresh burst of press attention. This includes reporting on massive price swings up and down, and stories of overnight millionaires. According to the media, a Welsh man who spilled lemonade on his laptop in 2013 and absentmindedly threw the hard drive away now wants to mine the local dump for the hard drive. Why? It contained the key to access his lost Bitcoin fortune said to be worth $100 million — but only if he finds it and if the drive is still operational.  It’s a good metaphor for Wild West, gold rush atmosphere of the whole cryptocurrency hype.

With this Investor Alert, and other recent warnings, FINRA points out that:

• Investment offerings based on distributed ledger or “blockchain” technologies may or may not qualify as securities. Many fundamental investor protections written into federal and state law depend on this distinction.
• The cryptocurrency markets inherently transcend national borders. This also limits investor protections. There may be restrictions on how much information the SEC can obtain about the investment, the quality of the information, and limit law enforcement ability to recover money.
• An “initial coin offering” (ICO) for a cryptocurrency is nothing like an “initial public offering” (IPO) for a stock.
• Lack of regulation, lack of clarity about the underlying value of the investment, and the excitement in the market create the perfect conditions for market manipulation and “pump-and-dump” schemes. Fraudsters may use the hype and make false, misleading or greatly exaggerated statements to drive up a higher share value, and then cash out their large holdings at the peak, driving values down and leaving innocent investors at a loss.
• Even if there’s no trace of fraud in an ICO, blockchain operators may themselves be vulnerable to hacking and other cyber threats

According to a December 11, 2017, public statement from SEC Chairman Jay Clayton, the number of such investments registered with the SEC is ZERO. “Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.”

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations.  Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or if your broker has stopped returning your calls, contact me. Consultations are free and confidential. Call (503) 358-8292 now.

The FINRA Investor Education Foundation issued a new research report, “Non-Traditional Costs of Financial Fraud,” based on a survey of 600 self-reported fraud victims. The survey details the emotional tolls and indirect costs (bounced checks, lost wages, lost opportunities, bankruptcy filings) that may come from losing money in a fraud.

Victims who lost the greater amounts in the financial fraud reported greater levels of interaction with the fraudster (e.g. communicating many times, filling out lots of paperwork, etc.) And the most frequently cited ways victims came into contact with the fraudster was through a friend or family member (18%) or a professional contact (13%).

Other significant survey results:

• 19% of survey respondents reported having between $50,000 and $100,000 invested in non-retirement securities accounts
• 40% of the survey respondents reported having more than $100,000 invested in non-retirement securities accounts

When asked whether they felt they had been defrauded in certain “red flag” scenarios, the survey participates responded:

• 28% “yes” and 19% “maybe” to having been defrauded by investing in a product or service (e.g. a vacation timeshare, annuity product, etc.) that they learned about from a free lunch seminar
• 23% “yes” and 17% “maybe” to having been defrauded by a stranger who called on the phone to offer an investment opportunity
• 15% “yes” and 18% “maybe” to having been defrauded in an investment that guaranteed a daily rate of return of over 10%
• 13% “yes” and 14% “maybe” to having been defrauded in an investment that involved a promissory note
• 13% “yes” and14% “maybe” to having been defrauded by someone offering “Prime Bank” or “bank guarantee” investments
• 13% “yes” and 14% “maybe” to having been defrauded in an investment that involved oil or gas exploration

Only 35% of victims reported the incident to some kind of authority. For those who didn’t report, the most common reasons were feeling like it wouldn’t make a difference, wanting to put it behind them, and being embarrassed.   Self-blame was a common reaction: 61% agreed with the statement that “I was defrauded because I was too trusting”. Anger, feelings of betrayal, and high stress were also highly reported by fraud victims.

The survey results are no surprise to the securities litigation & FINRA arbitration attorneys at Pasieczny Law LLC, who have combined over 35 years of experience in recognizing, advising, and recovering investment losses due to securities fraud, broker negligence, defective investment products, or other unlawful conduct across the country. “Victims of investment fraud often feel they were at fault for trusting the recommendations of their financial advisor, or they don’t want to “make trouble” for their advisor despite significantred flags,” says Pasieczny Law LLC attorney Darlene Pasieczny. “But acting quickly for a second opinion or consultation with a securities attorney can mean the difference between losing an entire retirement savings or recovering enough to rebuild and regain peace of mind.”

In addition to the red flag scenarios noted above in the FINRA survey results, other red flags might include:

• Discovering that you can’t easily sell an investment that you thought you could
• Excessive trading or high fees charged in an account
• Pressure from a financial advisor to make investment decisions quickly or without understanding the investment or paperwork you are asked to sign
• Having a lot of “alternative investments” like non-traded REITs, private placements, and interests in limited partnerships in your portfolio
• Having multiple accounts opened for you without a clear explanation why
• Seeing a swing in portfolio value of more than 10% in any account statement when you are a conservative or moderate investor
• Having investments that don’t appear on your brokerage company’s account statements

Contact the Investor Defender attorneys Robert S. Banks, Jr. and Darlene Pasieczny at Pasieczny Law LLC if you have concerns about your financial advisor or securities portfolio. We have the experience of representing over 850 clients in securities arbitration (now FINRA arbitration) and court, and our clients include individual investors from all backgrounds and across the United States, as well as pension funds, fiduciaries, municipalities, retirement plans, and other institutional investors.

The Wall Street Journal article, entitled Stockbrokers Fail to Disclose Red Flags, written by Jean Eaglesham and Rob Barry, describes an impressive study whose findings disclose a problem that has not previously been documented to this degree. More than 1600 stockbrokers in the study had dodged regulators and failed to report multiple bankruptcy filings and even criminal convictions.

The WSJ article makes the important point that brokers who hide their past problems have more disciplinary actions than other brokers. Hundreds of thousands of stockbroker records were evaluated and the data is clear. “About one in 33 had three or more other black marks such as customer complaints or terminations on their regulatory histories, a rate more than 65% higher than other brokers.” (WSJ 03/06/2013).

The WSJ reports in detail on the case of Mr. Levia – a broker whose regulatory record failed to include a judgment for unpaid debt and a criminal guilty plea. According to FINRA, the plea should have barred him from selling securities for 10 years. Instead, he continued to manage investor’s life savings, with disastrous consequences.

And just to be clear, it’s not just an occasional rogue broker or small firm that cloaks itself in an invisibility cape. The 10 largest brokerage firms in the Journal’s analysis have over 450 employees with bankruptcy filings that should have been reported. The list included stockbrokers from Merrill Lynch (now owned by Banks of America), J.P. Morgan Chase, MetLife, J.P. Turner. and a brokerage unit of Allstate, just to name a few.

Banks Law has always encouraged investors to review FINRA’s Brokercheck before investing with a financial professional and we will continue to recommend it. In addition we keep our own small website financialproductalerts.com to help alert investors of our current investigations into brokers, financial advisers, and brokerage firms.

Most importantly, if you ever have concerns about a financial adviser or broker, reach out to an experienced securities attorney with your concerns. We can help you to understand your options for recovery in a confidential, complimentary phone call.

A link to the full WSJ article is here but you may need an account to read the full article.