FINRA Category Archives — Securities Fraud Lawyers Blog Published by Securities Fraud Attorneys

Are You Planning for Retirement or Are You Already Retired? Potential Problems To Consider Before Entrusting Your Retirement Assets to a Registered Investment Adviser

Published on: May 22, 2023 | by Savage Villoch Law, PLLC

Whether you are in retirement or are planning for retirement, you may consider working with a Registered Investment Adviser (RIA) to manage your retirement assets. RIAs offer professional financial advice and are bound by the fiduciary duty to act in your best interest. However, there are potential issues you should be aware of as you consider working with an RIA. Here is a list of 10 potential problems with entrusting your retirement assets to an RIA.

Misalignment of Interests: While RIAs are held to a fiduciary standard by the Investment Advisers Act of 1940, this does not entirely eliminate the risk of self-interest affecting an RIA’s advice. For instance, RIAs might favor only those investment products from firms that are paying significant commissions to the RIA for selling that product. This means there is a significant potential conflict of interest causing an RIA to recommend the same small set of investment products to every potential client.
Limited Product Offering: Many RIAs have a limited range of investment products due to affiliations with certain investment companies. This could mean you may not have access to the full spectrum of investment options that might be more suitable for your retirement needs.

Margin Accounts and Investors

Published on: April 10, 2023 | by Savage Villoch Law, PLLC

Margin accounts are a popular tool used by investors to amplify their trading power. However, margin accounts also come with increased risk, and it’s important for investors, particularly senior investors, to understand the responsibilities of their broker-dealer when trading on margin. In this blog post, we’ll explore the responsibilities of broker-dealers in margin accounts and what investors need to know.

A margin account is a type of investment account that allows investors to borrow funds from their broker-dealer to purchase securities. With a margin account, investors are able to leverage their trades by borrowing against the value of their portfolio. This means that investors can potentially earn larger returns on their investments but also exposes them to increased risk.

Broker-dealers have a number of responsibilities when it comes to margin accounts. One of their primary responsibilities is to ensure that investors understand the risks associated with trading on margin. This includes providing investors with a detailed explanation of how margin accounts work, the potential risks and benefits, and any costs or fees associated with trading on margin.

The Most Common Investment Fraud Tactics – Part Two

Published on: November 7, 2022 | by Savage Villoch Law, PLLC

One of the best ways an investor can protect the value of their investments is by equipping themselves with knowledge about common tactics scammers use to defraud investors. The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have identified five of the most common techniques used in committing investment fraud. [1]

More information on the first three of these tactics – the “phantom riches” tactic, the “social consensus” tactic, and the “credibility” tactic – and how investors can avoid them can be found in Part One of this two-part series.

Here, we will consider the remaining two most common investment fraud tactics identified by FINRA and the SEC: the “reciprocity” tactic and the “scarcity” tactic.

The Most Common Investment Fraud Tactics – Part One

Published on: October 31, 2022 | by Savage Villoch Law, PLLC

When it comes to protecting investments, one of the most useful strategies is awareness. Investors can empower themselves by knowing the basics of the most commonly used investment fraud tactics.

Per the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC), three of the most common investment fraud tactics employed by scammers in the United States are known as the “phantom riches” tactic, the “source credibility” tactic, and the “social consensus” tactic. [1]

Each tactic essentially functions by allowing the fraudster to build a false narrative surrounding their supposed investment opportunity, thereby garnering interest and ultimately investment dollars from unsuspecting investor victims.

Three Simple Methods for Protecting Your Investments

Published on: October 24, 2022 | by Savage Villoch Law, PLLC

As the familiar adage goes, the higher the risk, the higher the reward. Of course, when it comes to investment strategies, risk is often one characteristic around which you can make informed decisions to mitigate or embrace, depending on your level of risk tolerance.

Yet there is one investment risk – the risk of fraud – which at first glance seems uniquely difficult to mitigate. Fortunately, there are indeed several steps investors can take to protect their hard earned investment dollars from fraud.

In the United States, the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) each offer investor resources for reducing the risk of investment fraud.

SEC Report Weighs in on January Meme Stock Frenzy

Published on: October 25, 2021 | by Savage Villoch Law, PLLC

Last week, the Securities and Exchange Commission (“SEC”) released its long-awaited report formally debriefing the events that transpired during the January and February 2021 meme stock craze. The 44-page report, titled “Staff Report on Equity and Options Market Structure Conditions in Early 2021” provides SEC staff’s analysis of the mechanisms behind the meme stock phenomenon, ultimately debunking a few theories made popular over social media and other media outlets as the events unfolded.

By way of a brief overview, in January 2021 a group of about 100 stocks experienced monumental price and trading volume fluctuations. These stocks, many of which were consumer-centered companies with high brand awareness, gained rapid attention over social media platforms like Reddit and YouTube.

While the SEC’s report addresses the events and impacts of the meme stock phenomenon broadly, it focuses the bulk of its analysis around GameStop Corp (“GME”), arguably the most famous of the meme stocks.

Investor Alert: Investment Adviser Impersonations on the Rise

Published on: August 16, 2021 | by Savage Villoch Law, PLLC

Instances of fraudsters disguising themselves as investment advisers and brokers are on the rise, prompting the U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy (OIEA), the FBI Criminal Investigative Division, and FINRA, each to release investor alerts and warnings.

While these regulatory agencies have identified multiple concerning fraudulent schemes, each type is centered around impersonation of investment advisers – a particularly worrisome and dangerous trend. A recent example was reported by the Texas State Securities Board, which announced that a Texas fraudster created a website for Prestige Assets Mgnt LLC, a name which is almost identical to that of the registered investment adviser Prestige Asset Management LLC. [1]

The regulator alleges that while the website is phony and does not represent a licensed dealer or investment adviser, it was built to look authentic, and actually directed users to the registered firm’s office location and CRD number. [1]

Retail Investor Beware: EV Companies Face Securities Fraud Scrutiny

Published on: August 9, 2021 | by Savage Villoch Law, PLLC

The recent announcement of securities fraud charges against Trevor Milton, the former CEO of Nikola Corporation, may prove to be the first in a line of similar cases involving electric vehicle (“EV”) companies, and more broadly, companies that go public via SPACs. This situation highlights the importance of careful investment decision making, particularly in the EV and other rapidly growing, highly complex industries.

At the heart of the civil and criminal complaints against Nikola are allegations that as its CEO, Trevor Milton, regularly spread false and misleading information about the progress of Nikola’s EV products and technologies. Nikola’s focus is on manufacturing low- and zero-emissions trucks, and the complaints allege in part that under Milton, Nikola published a promotional video of a prototype truck which did not actually work, but appeared to only because the truck was set in neutral and rolled down a hill. [1]

Promotional videos like that one, along with Milton’s enthusiastic social media posts and numerous podcast and television appearances, all painted a picture of exciting and impressive forward progress at Nikola, which Federal prosecutors and SEC regulators allege was nothing more than an illusion. [2]

As Margin Debt Reaches Record-Highs, Does Market Downturn Loom?

Published on: July 26, 2021 | by Savage Villoch Law, PLLC

Margin debt levels within the market are on a meteoric rise, with June 2021 finishing out at a record-high $882 Billion. [1] But such an intense rise in margin debt may not be much cause to celebrate; instead, history tells us that this trend may indicate an imminent market downturn.

Margin debt can be simply understood as debt taken on by an investor in order to extend their buying, and earning, power in the market. In essence, an investor borrows money to increase their initial investment and, hopefully, to supercharge their eventual profit.

For example, an investor might borrow $10,000 from their broker on margin in order to increase their initial investment from $20,000 to $30,000. If the shares they’ve purchased increase by 10%, the investor stands to make 50% more than they would have with only their own $20k.

FINRA Orders Record-High Financial Penalty Against Popular Stock-Trading App, Robinhood

Published on: July 12, 2021 | by Savage Villoch Law, PLLC

On June 30, 2021, FINRA ordered an approximately $70 Million financial penalty against Robinhood Financial LLC, the highest such penalty ever levied by the regulatory organization.[1] Through its investigation of the firm, FINRA charged Robinhood with numerous violations which had resulted in significant losses to their customers. While Robinhood neither confirmed nor denied the validity of FINRA’s charges, they ultimately agreed to settle with these massive sanctions. [1]

FINRA noted three major violations from its investigation into Robinhood’s conduct and operations as a stock-trading app, each of which merited its own penalties.

First, FINRA found that Robinhood has pervasively and negligently provided false or misleading information to its customers. [1] This false information was circulated in spite of Robinhood’s core mission to “de-mystify finance for all” and “democratize finance,” and ranged from misrepresenting customer account balances and buying power, to erroneous communication about customers facing margin calls. [2]