Be careful Bill. Sooner or later the SEC is out to get you.
>Rosalind Tyson, the attorney tapped as acting head of the Security and Exchange Commission's Pacific Regional Office, has spent her 19-year SEC career bringing financial fraudsters to heel.
During that time, a lot has changed at the commission. The chief improvement, Tyson says, has been an aggressive enforcement policy that gives SEC investigators a better chance of catching the bad guys before they scoot with their ill-gotten loot.
But the swindles that ensnare most investors remain depressingly familiar.
"You know, I'm not seeing any new scams," Tyson said. "They are the same old recycled ones."
Back in 1982, when Tyson joined the SEC four years out of Stanford Law School, the commission often found itself intervening long after investors had been hoodwinked and the bad guys had retired to the Cayman Islands.
Six ways to lose on investment fraud
Here are six of the most common investment frauds and how you could fall prey to them:
• Microcap fraud. Put your money in stock of tiny new companies, based on hot tips from callers in high-pressure "boiler rooms."
• Prime-bank fraud. Invest in a "prime bank" that allegedly makes huge profits overseas.
• Promissory-note fraud. Make a loan in exchange for an IOU from a fraudulent company or from people who fraudulently claim to represent a legitimate company.
• Affinity fraud. Unwittingly buy into a pyramid scheme by following investment advice from someone in a social or religious group you belong to, without checking its merits for yourself.
• Spam fraud. Fall for unsolicited e-mails that promise quick profits if you act immediately on a "risk-free" and "guaranteed" investment.
• Telemarketing fraud. Invest in a scheme proposed in a call from a telemarketer — and give that unknown person the numbers of your credit card and bank account. A National Consumers League survey found that 92 percent of adults said they had received fraudulent investment calls.
For more information, visit the U.S. Securities and Exchange Commission's Web site at www.sec.gov. For SEC pamphlets about fraud, call 800-SEC-0330.
Today, Tyson and others say, the SEC is able to intervene more quickly to shut down frauds, like boiler rooms or bucket shops pushing bogus stocks, by using temporary restraining orders and freezing assets.
"They have a pretty good reputation," said Dan Jamieson, editor in chief of Registered Representative, an Irvine, Calif.-based magazine that covers the brokerage business. "I don't know how you quantify how proactive they've been, but I think the bucket-shop problems are finally starting to be cleared up."
On the West Coast, the stepped-up enforcement is, in part, simply a function of the expansion of the Los Angeles office, which oversees SEC activities in nine Western states.
Today, the office has three times as many employees as it did in the early 1980s. Tyson says most are enforcement lawyers, the foot soldiers in the SEC's fight against fraud.
The commission has also streamlined its regulation of the investment-adviser industry in recent years.
"Reporting and registration have become automated, which has freed the bureau up to spend more time following through on other investigations," says Tom Lydon of Global Trends Investments in Newport Beach, Calif.
The changes at the SEC also reflect the activist leadership of former SEC chief Arthur Levitt, who stepped down in February after an eight-year term marked by high-profile crackdowns on Nasdaq price-fixing, Internet fraud, and conflicts of interest among analysts and accountants.
Tyson says she expects the aggressive policy to continue under incoming SEC head Harvey Pitt, who is expected to name a permanent head of the SEC's Los Angeles office.
Challenges remain at the commission. Jamieson says the SEC continues to suffer from high turnover because it pays its attorneys far less than they could get working on Wall Street.
"That's a key thing they need to do to make it better," Jamieson says. "They have a lot of these young attorneys who are very smart people, but they don't stick around that long."
The law the SEC enforces is, at its heart, pretty simple: It requires any company or individual selling stock to investors to be honest about the risks involved.
As a result, most of the frauds targeting individual investors are ridiculously easy to spot and avoid. That's because they promise high returns with low or no risk and require immediate action — red flags rarely associated with legitimate offerings.
Even so, the scam artists continue to thrive, Tyson says, because investors continue to fall for their fraudulent patter. What gets Tyson's goat after 19 years of shutting down boiler rooms and brokers gone bad? Not the craftiness of the criminals.
"It's where investors don't ask questions because they think they're being let in on a special deal," she said.
"Never be rushed into making an investment. Take notes, ask a lot of questions, think about it. If the broker seems to be telling you that this investment is going to disappear if you don't act fast, ask yourself, 'Why are they giving you the opportunity if it's so special?' "
FACTS
Avoiding stock fraud
Rosalind Tyson, acting director of the Security and Exchange Commission's regional office, has these tips for investors on how to avoid stock fraud:
• Consult with a broker or adviser before making any investment.
• Check the background of a broker or financial adviser before you invest. A good place to check out brokers is at www.nasdr.com. This fall, the SEC will offer a similar screening tool for financial advisers on its Web site.
• Make sure your broker knows your risk tolerance, tax status, investing time frame and retirement needs before you invest.
• Know how your adviser or broker is being compensated.
• Realize that investments are for the long term. "The mentality of the late 1990s, where some segments of the market got into the psychology that you could make money overnight, is not the environment we're in now," Tyson said. "(The bubble of the late 1990s) made what the fraudsters were saying sound almost reasonable. It was harder to distinguish risky legitimate stocks from scams."
• Finally, if you have a complaint, write a letter and mail it. A letter "is the very best kind of evidence for you, and your case is more likely to be resolved," Tyson said. |
