Luring Investors with Day-Trading

The scammers lured investors with the low-risk nature of day-trading. By exaggerating low costs and fees and high leverage of day-trading, the phony firm managed to entice investors in more than 30 countries.

Targeting Inexperienced Investors

These scammers specifically targeted inexperienced investors in their scheme. Inexperienced investors are typically much more prone to investment scams. While no one should be intimidated by investing their finances, new and inexperienced investors should watch out for signs of fraud. Before making any commitments, investors should:

• Avoid investments promising low-risk/high-returns
  • In this case, inexperienced investors were lured by the day-trading firm offering high-leverage and low costs.
• Research the investment firm/broker for past deals
  • Two scammers operated a fraudulent firm, Nonko Trading, an unregistered brokerage firm. Investors can search the SEC’s database of registered broker-dealers and firms.
• Confirm Transactions and Investment Returns
  • These investors’ funds were never even routed to the market. Instead, they were sent directly to the scammers pockets. For investors who asked to close their accounts, scammers allegedly made “Ponzi-like” forms of repayment.
• Familiarize with Investment platforms and software
  • Nonko Trading perpetuated its scam through a false trading platform. Rather than using a live trading platform, the scammers used a training software that simulated securities trading.

Learning From Experience

The fact is, all investors are susceptible to risks. The lesson to be learned is that due-diligence and practical investing goes a long way in minimizing unnecessary investment risks, like fraud. While one must learn from personal experience, there is a network of resources out there to help inexperienced investors and empower them by learning through shared experience. Savage Villoch Law, PLLC has more than 20 years of experience defending investors and financial securities consumers. If you need help defending your financial security, contact us today.

Settling Customer Disputes

Usually, disputes over securities brokerage/trading are settled through arbitration as opposed to traditional litigation. Though arbitration is the primary form of dispute resolution, mediation may also be used as an alternative. In most contract agreements between securities consumers and broker-dealers, arbitrations are written out as the means of dispute resolution and are subject to the governing rules and regulations of the Financial Industry Regulatory Authority (FINRA).

Arbitration

This process differs from traditional litigation in several ways:

• A neutral arbiter oversees the resolution process instead of a judge or jury
• Arbitrations have a limited grounds for appeal
• Arbiters follow FINRA’s Code of Arbitration Procedure instead of legal precedent
• Documents submitted during arbitrations are not generally made publicly available
• Arbitration is usually more timely and cost-efficient than litigation

FINRA Arbitrations

Several different procedures for arbitrations are addressed by FINRA, based on nature of disputes and value of claims.

• Simplified Arbitration
  • Claims valued under $50,000
  • Least costly method
  • One arbiter assigned to dispute
  • In-person hearings not necessary
• Arbiter Selection
  • Claim value $50,000 or less – 1 arbiter
  • Values of $50,000-$100,000 – 1 or 3 arbiter panel
  • Claims over $100,000 – 3 arbiter panel
  • Read FINRA’s FAQ for arbiter selection process
• Securities Firms Using FINRA Process
  • Bats BZX Exchange, Inc., Bats BYZ Exchange, Inc., Bats EDGA Exchange, Inc. and Bats EDGX Exchange, Inc.
  • BOX Options Exchange, LLC
  • Chicago Board Options Exchange (CBOE) and C2
  • IEX Group
  • International Securities Exchange, LLC (ISE), Gemini and Mercury
  • MIAX Options Exchange (MIAX)
  • Municipal Securities Rulemaking Board (MSRB) (a self-regulatory organization for municipal securities)
  • NASDAQ
  • NASDAQ OMX
  • New York Stock Exchange (NYSE)
  • NYSE Amex
  • NYSE Arca
• Customer Dispute Fees
  • Filing fee assessed based on value of claim. Typically $225-$4,000
  • Hearing session fees based on dispute amount and number of arbiters
  • Arbitrations may be subject to other assorted fees (administrative, adjournment, etc.)
• Filing a Customer Dispute
  • Visit the FINRA Office of Dispute Resolution website to find resources and information on filing a claim
  • Customers usually have 6 years from date of occurrence to file a claim, but other statute of limitations may apply
• Finding a Lawyer
  • Though hiring an attorney is not necessary for an arbitration, customers may opt for legal counsel to navigate the process. This requires an attorney skilled in securities disputes. Savage Villoch Law, PLLC has been fighting for clients involved in securities disputes for over 20 years. Contact us today to find out your options in protecting your financial investments.

Last week, the Financial Industry Regulatory Authority (FINRA) handed out a $650,000 fine to a broker-dealer in the Lincoln Financial Network. The industry watchdog group found that the independent broker-dealer in Lincoln Financial’s network allowed thousands of customers’ data to be exposed to foreign hackers. Similarly FINRA also found that Lincoln Financial Securities Corp. failed to ensure the security of their customers’ consolidated reports. Consolidated reports store essential client account information and assets. FINRA’s charge states that sensitive customer information was left vulnerable to cyber threats from 2011-2015. The failure of Lincoln Financial to secure their customers’ data led to foreign hackers exposing more than 5,400 customers’ confidential information from one of the firm’s cloud servers. Lincoln Financial Securities has neither admitted or denied guilt to the allegations. The financial securities firm has reached a settlement with FINRA for $450,000.

Who’s to Blame?

What should be troubling for consumers is Lincoln Financial’s failure to accept ethical responsibility for their lack of action in properly securing vital customer information. They have reached a financial settlement, but refuse to acknowledge fault on behalf of the firm in either instance. The Lincoln Financial Network has nearly 9000 independent broker-dealer representatives. Apparently, oversight over these independent reps is severely lacking and, with this many, there could be a whole lot more customer account databases left vulnerable to security threats. National financial securities firms need to know that simply paying a fine is not sufficient. Thousands of customers’ financial security is left in the hands of these firms and they have a responsibility to protect their customers’ information. Bringing out the checkbook is not the same as waving a magic wand. A customer’s sense of security is violated when something like this happens. Large financial securities firms need to take measures to ensure their customers’ peace-of-mind about the continued protection and retention of personal information.