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Utah Division of Securities
Keith WoodwellDirector, Utah Division of Securities
Division of Securities Update:Current Trends, New Legislation, Staying out of Trouble, and Common Scams
More about
Utah Division of Securities
• Who: Utah State Government Agency, Department of Commerce;
• What: Protect Investors, Promote Commerce, Regulate Industry
• When: Office Hours- M-F 8 am-5 pm
• Where: Heber Wells Building, 160 E. 300 S. Salt Lake City(801) 530-6600www.securities.utah.gov
Utah Division of Securities
1. Scintillating State Securities Statistics Is the securities industry growing or shrinking in Utah? What
about securities fraud in Utah?
2. Windfalls for Willing Whistleblowers Utah’s Securities Fraud Reporting Program Act
3. Problem Products and Practices From selling away to exotic ETFs to secondary liability for
finders in a Ponzi scheme.
4. Scanning for Scams We need your help in reporting and stopping these common
scams.
Utah Division of Securities
Scintillating State Securities Statistics
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
80,000
85,000
90,000
95,000
100,000
105,000
Broker-Dealer Agents Licensed in Utah
Broker-Dealer Agents Licensed in Utah
Utah Division of Securities
Scintillating State Securities Statistics
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
0500
1,0001,5002,0002,5003,0003,5004,0004,500
Investment Adviser Representatives Licesned in Utah
Investment Adviser Representatives Licesned in Utah
Utah Division of Securities
Scintillating State Securities Statistics
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
0
50
100
150
200
250
300
Complaints ReceivedNew Cases Filed
Utah Division of Securities
Scintillating State Securities Statistics
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
Fines AssessedFines Paid
Utah Division of Securities
Scintillating State Securities Statistics
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
0
5
10
15
20
25
30
35
Criminal Cases Filed
Criminal Cases Filed
Utah Division of Securities
Scintillating State Securities Statistics
Utah ranks 34th among the 50 states in terms of population. Some other Utah rankings among the 50 states:• 14th in number of complaints received• 8th in number of enforcement actions filed• 8th in total amount of fines imposed• 31st in number of enforcement staff
Utah Division of Securities
Windfalls for Willing Whistleblowers
The Problem: Most securities fraud cases are not reported until after the possibility of meaningful recovery for the investors has been exhausted.
The Solution: Incentivize victims and insiders to come forward early in the process.
Utah Division of Securities
Securities Fraud Reporting Program Act(Utah Code Ann. § 61-1-101 Et. Seq.)
• Applies to conduct on or after May 10, 2011.• Provide “original information” leading to successful
enforcement action with monetary sanction exceeding $50,000.
• Eligible for an award of up to 30% of sanction actually collected.
• Includes protections for employees reporting misconduct.
Utah Division of Securities
Problem Products and Practices
The Six Most Common Types of Violations
50 States Utah
1. Fraud 1. Fraud
2. Unlicensed Individual or Firm 2. Unlicensed Individual or Firm
3. Unregistered Securities 3. Fail to Supervise
4. Dishonest/Unethical 4. Unregistered Securities
5. Fail to Supervise 5. Books and Records
6. Suitability 6. Suitability
Utah Division of Securities
Problem Products and Practices
The Six Most Common Violative Products or Practices
50 States Utah
1. Reg D / Rule 506 1. Reg D / Rule 506
2. Ponzi Schemes 2. Real Estate
3. Real Estate 3. Ponzi Schemes
4. Oil and Gas 4. Affinity Frauds
5. Structured Products 5. Third Party Custodians
6. Hedge/Private Equity Funds 6. Precious Metals
Utah Division of Securities
Problem Products and PracticesIssues We Are Focused On:• Selling away• Insurance agents selling securities
without a license• LEAP programs• Structured products; exotic ETFs
and ETNs• Fix and flip real estate schemes
Recognizing and Avoiding
Investment Fraud
Public Service Ads & Billboards
Red Flags Commercial
Con ManCommercial
The Guy Next Door with a “Can’t Miss” Investment Offer
“Buddy, have I got a deal for you!”
The Red Flags
Promise of High Returns Promise of Little or No
Risk Prey on Investors’ Trust High Pressure Sales
Tactics
1. Ponzi Schemes2. Start Up Companies3. Precious Metals Schemes4. Crowd-Funding5. Affinity Fraud
What the Guy Next Door is Really Offering You
1. The Ponzi Scheme
• The hallmark of all Ponzi schemes is to create the illusion of a successful investment or business by using money from new investors to pay earlier investors.
• There is typically no legitimate business revenue, but investors are provided with false statements or reports to create the appearance of high returns on investment.
1. The Ponzi Scheme
Madoff was able to keep his Ponzi running for 40+ years, but all Ponzis eventually collapse (most of them much sooner) when the new money coming in can’t keep pace with the demand for money going out.
1. The Ponzi Scheme
2. Start-Up Companies
New companies typically require capital ($$$) in order to start the operations of the business.
Watch out for: Offers of stock that you
can not easily resell. Investments in
unsecured promissory notes.
2. Start-Up Companies
Little known, recently created, or non-existent companies
Interest rates well above market rates (2-5% per month)
The promoter talks about real property or other assets that “guarantee” your investment, but you receive no legally enforceable collateral.
Lack of information regarding management or financials
Claims of the investment having “no risk,” or being guaranteed
Red Flags Include:
3. Precious Metals Schemes
Precious metal schemes come in a variety of forms…and metals. Investments can include opportunities to own a portion of the mining company, the mine itself, or used for capital to operate the mines. A variable form of the investment also includes the purchase of precious metals, which the seller will maintain and “store” for the purchaser.
3. Precious Metals Schemes
Legitimacy of company “Secret” extraction process Promises of greater than
average returns (Nevada gold mines average 0.04 to 0.20 troy ounces of gold per ton)
Reward v Risk
4. Crowd-Funding
Started with small businesses seeking donations through the internet. New law (JOBS Act) will allow small businesses to sell their stock to small investors via the internet.
Indiegogo.com
Kickstarter.com
4. Crowd-Funding
Start-up companies are the most risky.
Stock cannot be easily resold.
Information about the company may be limited.
Could be used by con artists to set up bogus companies.
5. Affinity Fraud
Affinity fraud uses common membership in a church, family, tribe, etc.
“I am also a member of your _________ so you can trust me.”
Name Dropping -- Same “deal” was made with a prominent leader of your organization.
securities.utah.gov
Check Out an Investment
Complaints
Questions?
Keith WoodwellUtah Division of Securities
801-530-6600www.securities.utah.gov