Investment Fraud

Auction Rate Securities Settlements

Most investments are legitimate and the majority of registered salespeople are honest. However, some salespersons are not honest and some "investments" are phony. Con artists attempt to steal money by selling nonexistent or worthless investments, using misleading information and lies. They forge documents, make false claims, offer hollow guarantees, provide fake references, and promise high returns. The bottom line - if a deal sounds too good to be true, it likely is!


Warning signs of investment fraud:

1. Beware of unexpected phone calls, letters, internet messages, even personal visits from anyone offering a quick-profit, low-risk opportunity that requires your immediate attention. When hounded on the phone by a promoter, don't be afraid to hang up without explanation. You do not owe the caller anything - in fact this kind of solicitation is an invasion of your privacy.
   
   
2. High pressure sales tactics. Common examples of high pressure sales pitches include:
   
   • "Act now, there is a waiting list of others who want to invest"
   • "Hurry, or it will be too late"
   • "Don't delay, this investment is as safe as a CD (certificate of deposit)"
   
   
3. The promise of incredibly high profits. Look with doubt on promises that you can double your money or earn a high return on your investment within a short period of time.
   
   
4. Be suspicious of an investment that is supposedly risk-free, low-risk or "secured" but promises high returns.
   
   
5. Watch out for people who prey on your fears. It is common for swindlers to pitch their schemes as a way to eliminate your financial fears for the future. Fear and greed can cloud your good judgment.
   
   
6. Be extra cautious of investments or products endorsed by groups. Many swindlers will attempt to obtain the endorsement of churches, fraternal and other organizations to lend credibility to their sales efforts. Just because an investment is endorsed by some group does not mean it is legitimate!

Know Your Rights
You may occasionally encounter problems in your investment account(s). Sometimes these mistakes are simple clerical or accounting errors that can be corrected easily. However, abusive and fraudulent practices can - and do - happen, and you need to be able to spot these situations so that you can take immediate action. The following are illegal situations to avoid.

• Unlicensed activity: All brokerage firms, salespersons and investment advisers who conduct business in North Dakota must be registered with the North Dakota Securities Department (unless specifically exempt by law). Any unlicensed activity is a violation of the securities law.
  
  
• Unregistered securities: Every securities product offered for safe in North Dakota must be registered with the North Dakota Securities Department (unless exempt). It is a violation of the law to sell unregistered securities in North Dakota.
  
  
• Unauthorized trading: Brokers may not trade on the investors behalf unless specifically authorized to do so.
  
  
• Unsuitable recommendations: Brokers and advisers are required to make suitable recommendations based on your financial situation and investment goals and risk tolerance.
  
  
• Misrepresentations/Omissions of material facts: Your broker is obligated to be truthful - and complete - in presenting investment opportunities to you.
  
  
• Account churning: Excessive trading of a customers account is an illegal practice done for the sole purpose of inflating the salesperson's commissions.
  
  
• Timely trades: Brokers are required to promptly execute customer orders (at or near the same price that was quoted at the time the order was received).
  
  
• Failure to deliver. At the request of the customer, delivery of securities (and any uninvested funds) must be made within a reasonable period of time.
  
  
• Unauthorized transfer of assets: No funds or securities may be withdrawn from an investors account without his or her written authorization.

Resolving Disputes
Most arrangements between investors and their brokers or advisers are trouble-free. Your broker or adviser cannot be held responsible if your investments were simply not as successful as you would have liked. Occasionally, though, legitimate problems do arise. If you are not satisfied with the proposed solution to your complaint, speak with your broker's manager or the firm's compliance officer.

Put your complaint in writing and ask for a written response to your problem. This correspondence serves as documentation and is essential if your complaint goes to arbitration or other dispute proceedings. Arbitration is less costly and generally a faster means of resolving a dispute than traditional litigation. Those who choose arbitration forfeit their right to pursue the matter in court. Arbitration awards are almost always final.

If you believe securities laws have been violated, contact the North Dakota Securities Department. Our office can investigate complaints, help prosecute violators and impose administrative sanctions against the broker and/or the firm. However, our office cannot provide legal representation or retrieve investment losses.

"IT'S NOT THE RETURN ON MY PRINCIPAL THAT WORRIES ME; IT'S THE RETURN OF MY PRINCIPAL"
WILL ROGERS

Investment Tips

• Never send cash or cashier's check through the mail or give it to a messenger sent by the salesperson, and never give a credit card number over the phone.
  
  
• Keep all correspondence and take notes of all conversations regarding an investment.
  
  
• Do not be pressured into buying by "tomorrow will be too late" tactics. No legitimate broker will rush you into an investment. High pressure is a good indicator of fraudulent operations.
  
  
• Beware of testimonials. Fraudulent companies sometimes hire people to claim that the firm's investments brought them wealth. Other con artists exploit the trust that members of churches, fraternal organizations and ethnic groups have for one another.
  
  
• Pressure to put all your savings into a single investment is a sign of a scam. Reputable stockbrokers believe that diversification is a wise safeguard.
  
  
• If in doubt, do not invest. It is better to be safe than sorry. Also, if you become suspicious, get out of the investment. Stop payment on your check or demand your money back.
  
  
• Make sure the salesperson and the product are registered with the North Dakota Securities Department.