Read that over a few times. Are those two words beginning to sound similar? That’s what the founders of My Big Coin, Inc. were hoping when they created their cryptocurrency investment offering. The Nevada-based company has been accused of defrauding investors hoping to cash-in on the recent investment trend. The Commodity Futures Trading Commission (CFTC) recently filed a lawsuit alleging the company used false and misleading information to steal from cryptocurrency investors. The My Big Coin founders preyed on the investor frenzy surrounding virtual currencies, like the popular Bitcoin – which has been yielding dizzyingly high returns – and widespread misunderstanding of the digital assets. By simply choosing a name that sounded vaguely familiar to “Bitcoin”, the company managed to solicit a total of $6 million from 28 investors. In what the CFTC essentially refers to as a Ponzi Scheme, My Big Coin, Inc. solicited investors and wooed them with false claims about values and usage of the fraudulent cryptocurrency. The fraudsters used investments from incoming investors to pay off initial investors, thereby sustaining the appearance of healthy investor returns. Other earnings were used to purchase lavish personal items.

New Players, Same Old Game

What this should teach us – aside from the alarming fact of how widely unregulated the cryptocurrency boom remains – is that cryptocurrency scams are just variations on a theme. In other words, they’re a new dog with the same old tricks. While cryptocurrency is a new and currently-evolving asset class, the investment scams cropping up around them are nothing more than the same ones fraudsters have been using for years – just adapted to suit the current climate. What makes these particular scams especially dangerous is the apparent lack of information investors have regarding cryptocurrency investing or even what cryptocurrency is for that matter. Fraudsters are able to so easily take advantage of investors because of the widespread insufficient understanding of the asset.

Don’t be an Ignorant Investor

We all know the phrase “ignorance is bliss”. However if you’re an investor, ignorance is sure to get you into hot water sooner than later. You need to be completely aware of not only in what you are investing, but also the how and why you are investing.

In the case of My Big Coin, investors allowed themselves to get caught up in the hype and fervor over the virtual currency boom. Realistically, little research (if any) was probably done on the company, with investors choosing to rely on fraudulent earnings reports showing big returns. The trouble is, it is not just novice investors falling victim to cryptocurrency scams. Fraudsters continue relying on the same old scamming methods, because they continue to work. While the blind hype around virtual currencies has certainly made it easier for scammers to dupe some investors, other fraudsters are getting more creative. By employing the basic tactics of “tried and true” investment fraud schemes, scammers create elaborate and complex scams that can dupe even experienced investors. The fact is, virtual currencies remain largely unregulated and existing measures are shaky, at best. Cryptocurrency as, an emerging investment class, continues to evolve at a rapid pace and regulators are constantly playing catch-up.

Blindspots in Oversight Leave Room for Cryptocurrency Scams

While there is an effort to ramp up enforcement and oversight for crypto-assets, regulators are warn that investor protection – like investment-loss recovery – is largely insufficient or non-existent. Unfortunately, these conditions are ripe for fraud. As you might imagine, severe lack of oversight and minimal enforcement of a new and widely misunderstood investment class probably sounds like the perfect opportunity for fraudsters, or what financial industry regulators call, ‘bad actors‘.

Until sufficient measures can be put in place, regulators are imploring investors to exercise caution and practice due diligence before committing to any investment opportunity. The Securities and Exchange Commission (SEC) is warning investors interested in Initial Coin Offerings (ICO) to be especially vigilant, as cryptocurrency scams involving this investment offering have been on the rise. In December, the SEC issued a public statement warning investors of the regulation realities. In it, SEC Chairman Jay Clayton states:

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.[2] If any person today tells you otherwise, be especially wary.

Currently, lawmakers and regulators are meeting to discuss building a stronger regulatory infrastructure for cryptocurrency investing. SEC Chairman Jay Clayton and CFTC Chairman J. Christopher Giancarlo appeared at a Senate hearing to discuss legislators’ concerns over crypto-assets.

Spotting ICO and Other Cryptocurrency Scams

Despite their apparent vulnerabilities, cryptocurrency investments remain popular. Even regulators have to concede some merit to the use-potential of crypto-assets. In that same December statement warning of industry risks, Clayton also recognized the effectiveness of initial coin offerings as fund raising method for entrepreneurs and startup businesses. The world of virtual currency industry is very much a modern Wild West; there’s promise and potential, but there are also dangers. Until the dust finally settles, regulators stress that investors need to remain vigilant against fraud. There are many resources available to educate investors interested in learning more about cryptocurrency. If you are considering a cryptocurrency investment offering, check out these resources:

• SEC
  • Ponzi Schemes Using Virtual Currencies
  • Sample Questions for Investors Considering a Crytpocurrency or ICO Investment Opportunity
• CFTC
  • Primer on Virtual Currencies
  • Virtual Currency Resource page
• FINRA
  • “Don’t Fall for Cryptocurrency-Related Stock Scams”

For even more information on cryptocurrency scams and news updates, check out our blog.

In business, there are bound to be disagreements. Whether it is a contract dispute or failed negotiation, business disputes are going to occur. It’s usually not personal, but business disputes can be a major roadblock and source of stress, especially when handled improperly. Settling disputes fairly and effectively is imperative. If handled poorly, dispute resolution can become a lengthy and costly ordeal involving weeks, months and sometimes even years of litigation and trial. While business disputes are unavoidable, litigation is. Here are some means of alternative dispute resolution that can help settle business disputes and avoid the headache and cost of trial.

Alternative Dispute Resolution

There are two main types of alternative dispute resolution:

• Mediation
• Arbitration

With mediation, a neutral third-party facilitates a dialogue between two parties who negotiate a resolution themselves. While a mediator may make recommendations or suggestions for resolution, it is up to the conflicting parties to reach an agreement. Whereas with arbitration, an appointed arbitrator or arbitration panel determines the outcome of the resolution of a dispute. Although arbitration is similar in practice to trial, it is usually a much quicker and less costly method of dispute resolution than traditional litigation.

Ensuring a Successful Resolution

The key to either manner of alternative dispute resolution is a willingness to cooperate. Conflicting parties need to make an effort to negotiate fairly and openly with one another. It also helps if both parties are familiar with basic alternative dispute resolution procedures.

Resources for Dispute Resolution

Savage Villoch Law, PLLC is equipped to handle all forms of business disputes. We can assist our clients in both mediation and arbitration procedure and, if necessary guide them through the litigation process. Our team has a combined experience of over 20 years in helping resolve business disputes. Our team is also highly experienced in handling Financial Industry Regulatory Authority (FINRA) arbitrations. Contact us today if you need help in determining what path is the right one to resolve your dispute.

Reviewing Your Investment Brokerage Activity

• Watch for Red Flags
  • Unauthorized trades – Investors still have executive control over brokerage activity. Make sure to grant prior approval for all deals.
  • Frequent trading – Be wary of frequent trades and sales that don’t fit with your investment plan.
  • Excessive fees – Don’t be afraid to inquire about any irregular or excessive fees you receive on your statement. It is important to know
• Be Aware of Illegal Brokerage Activity
  • Churning – Churning is a term given to excessive broker-dealer trading. This occurs in order for broker-dealers to earn higher commissions. It is important to know that even excessive brokerage activity resulting in higher returns can still be considered churning.

Stopping Excessive Brokerage Activity

• Discuss Investment Goals – Discuss your investment goals with your broker-dealer. Make them aware of your expectations and needs.
• Discuss Activity with Brokerage Firm – If you are notified of excessive activity by your brokerage firm, discuss the investment plan that you made with your broker-dealer. Make sure you know if your broker’s actions are not in compliance with regulations.

Investor Resources

• Check your broker-dealer’s background by going to Investor.gov
• Submit a complaint to SEC or FINRA
• Contact Savage Villoch Law for questions on investment loss recovery

Consumer Records Left Vulnerable

Customers are left vulnerable when securities brokerage firms leave no protection plan in place for securing consumer records and other broker-dealer data. Fraudsters and financial hackers can access these records and alter or erase them. They can also drain these databases of personal financial information. FINRA prescribes a certain format for regulating consumer records to prevent alteration. FINRA requires the “write once, read many”, or WORM, format for broker-dealer firms to use. According to FINRA’s fine report, the improperly stored records affected millions of consumers. Below is a list of securities brokerage firms included in FINRA’s fine:

• Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC – $4 million joint-fine
• RBC Capital Markets LLC and RBC Capital Markets Arbitrage S.A. – $3.5 million joint-fine
• RBS Securities, Inc. – $2 miilion fine
• Wells Fargo Advisors, LLC, Wells Fargo Advisors Financial Network, LLC and First Clearing, LLC – $1.5 million joint-fine
• SunTrust Robinson Humphrey, Inc. – $1.5 million
• LPL Financial LLC – $750,000
• Georgeson Securities Corporation – $650,000
• PNC Capital Markets, LLC – $500,000

Many of the securities brokerage firms listed are some of the largest in the country, providing millions of consumers with brokerage and other financial services. By improperly collecting and storing information, these firms leave consumers stuck with the biggest risk; financial liability. Broker-dealer/consumer records contain many vital bits of personal information and other sensitive financial data. If this information is left open to something like alteration, it could mean big trouble for the customer.

Know Your Resources

At Savage Villoch Law, PLLC, it is our mission to protect financial consumers and brokerage service customers. Contact us today if you feel your information was mishandled or for another complaint against your broker-dealer. Visit FINRA’s BrokerCheck to find out everything you need to know about a potential broker-dealer or brokerage firm.

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.

Shouldn’t this be the same for your investment broker?

Whatever security in which you invest, it is important to know who your investment broker is. Knowing your investment is in the right hands goes a long way in ensuring the security of your investment. This means more than knowing your broker’s name and favorite sports team. As an investor, you have to know that the person handling your finances and assets is trustworthy enough to have that responsibility. Investments already assume enough risk. You should not have to worry about your investment broker.

Vetting Your Broker

There are some important things you need to consider before choosing a broker that is right for you. This requires doing some background research on potential candidates beforehand. Investors should know a broker’s:

• Disciplinary history
• Reasons for departure from other firms
• Professional conduct
• Personal financial health

Fortunately, there are tools available to investors that make this very easy. The Financial Industry Regulatory Authority (FINRA) has a great website, BrokerCheck, that searches their extensive database of registered individual brokers and firms. FINRA’s database looks into several key aspects of a broker’s background and experience to provide investors with a comprehensive view of broker competency and professional ethics.

Who, What, When, Where, Why… and How

Your broker should be able to answer these basic questions about their performance and employment history. If a potential investment broker seems unwilling or unable to answer these simple question, they are probably not a good fit. Don’t put an added risk on your investment. Put your financial future in the hands of a broker you can trust.

This week, the Securities and Exchange Commission (SEC) indicated that it would be calling on a need for more oversight from its financial regulation partner, the Financial Industry Regulatory Authority (FINRA). The decision to shift responsibility comes with an SEC initiative to devote more energies towards the rise of independent financial advisers. New business models offering greater independence and variety of investment services have led to an increase in the registration of investment advisers. Since this increase, the SEC has been criticized for lack of oversight, managing to examine only 10 percent of new investment adviser registrations per year. The SEC is increasing their investment adviser oversight an extra 20 percent to meet the growing number of independent advisement services. As the SEC’s new focus will take examiners away from the Wall Street sector, it says it will need FINRA to step up their efforts to brokerage oversight. While the SEC won’t be entirely removed from brokerage oversight, FINRA seems to be handling the shift well. On Tuesday, Reuters reported that FINRA had fined Bank of America’s Merrill Lynch $2.8 million for record-keeping and trade reporting violations. FINRA is an independent, financial regulatory organization. It is a privately-funded organization but it seems committed to it’s self-regulatory purpose. In regards to the Merrill Lynch fine, FINRA head of market regulation reiterated that accuracy of information reported by broker-dealers was critical for market integrity, according to the Reuters report. Regardless, the SEC wants to ensure that brokerage oversight will remain a priority. They will be keeping regulators focused on brokerage oversight in New York and Chicago, two of the largest brokerage sectors. They will also be overseeing FINRA’s efforts. Reuters reports that a group named FINRA and Securities Industry Oversight will monitor FINRA’s brokerage oversight examiners from offices in various major U.S. market sectors.