SAMPLE SPEECH:

How State Securities Regulators
Serve and Protect Investors

Thank you for that kind introduction. I appreciate the opportunity to be here today to speak about how the (agency’s name) protects investors throughout the state. I’d also like to spend some time outlining the most common ploys being used to cheat investors.

Securities markets are global but securities are sold locally by professionals who are licensed in states where they conduct business. In (state’s name), these professionals are licensed by my agency, the (agency’s name).

We have been called the “local cops on the securities beat,” and I believe that is an accurate characterization. We are here to serve and protect investors. We respond to investors who typically call us first with complaints, or request information about securities firms or individuals.

Our agency works with criminal authorities to prosecute companies and individuals who commit crimes against investors, and brings civil actions for injunctions, restitution and penalties against companies and individuals who commit securities fraud.

States have protected Main Street investors from fraud for nearly 100 years. The role of state securities regulators has become increasingly important as growing numbers of Americans rely on the securities markets to prepare for their financial futures, such as a secure and dignified retirement or sending their children to college.

While some of our high-profile enforcement actions make headlines, I realize that not everyone fully understands what we do on a day-to-day basis to protect our state’s investors.

In addition to enforcing (state’s name) securities laws, our agency protects investors and helps maintain the integrity of the securities industry by:

§ Licensing stockbrokers, investment adviser firms (those managing less than $25 million in assets), and securities firms that conduct business in the state;

§ Investigating investor complaints and potential cases of investment fraud;

§ Examining broker-dealer and investment adviser firms to ensure compliance with securities laws and maintenance of accurate records of client accounts;

§ Assisting small businesses to raise capital and reviewing certain local offerings not covered by federal law;

§ Educating investors about their rights and providing the tools and knowledge they need to make informed financial decisions, and;

§ Advocating passage of strong, sensible, and consistent state securities laws and regulations.

Because our local offices are often the first to receive complaints from investors, we serve as an early warning system, working on the front lines, and alerting the public to the latest scams. We have a history of taking enforcement actions against the very worst fraudsters, often those selling unlicensed products and Ponzi and pyramid schemes of all types. In addition to investigating cases and bringing enforcement actions, we work with national regulators on market-wide solutions when they are needed.

Each year investment fraud costs Americans billions of dollars each year. As (state name)’s securities regulator, I want you to know that we are doing our best to protect investors, but we need your help, as well.

Investors are the first line of defense against fraud. The best weapons investors have to protect themselves and their money are skepticism, common sense and a greater level of investor awareness.

To help increase your investor awareness, I’d like to spend our time today outline 10 of the most common ploys being used to cheat investors. It pays to remember that if an investment sounds too good to be true, it usually is.

The following scams are the top 10 threats facing investors:

PONZI SCHEMES. Named for swindler Charles Ponzi, the premise is simple: use money from later investors to pay early investors. Inevitably, the schemes collapse and the only people who consistently make money are the promoters who set the Ponzi in motion. In one recent case, Pennsylvania securities regulators broke up a massive Ponzi scheme and returned $10.6 million to 300 investors in Pennsylvania, Delaware, Florida, New Jersey, and Australia.


UNLICENSED INDIVIDUALS SELLING SECURITIES. Individuals who sell securities or provide investment advice are required to earn a license by passing rigorous examinations before they can offer their services to the public. Those who bypass this requirement often are predators offering bogus investments. Unlicensed people selling unregistered securities should be a red alert for investors. Con artists also frequently use the promise of high commissions to lure some insurance agents, investment advisers, accountants, and lawyers who are not licensed to sell securities into selling investments they may know little about, such as bogus limited partnerships or promissory notes.

UNREGISTERED INVESTMENT PRODUCTS. Legitimate investment products, excluding stocks sold on national exchanges, must be registered with state officials before they can be offered for sale to the public. Con artists bypass this requirement because they know that stringent state registration requirements protect investors from their offerings of viatical settlements, pay telephone and ATM leasing contracts, promissory notes, investment trusts, and other unregistered securities. Most unregistered investments promise “limited or no risk” and high returns. In almost all cases, the only profits go to the promoters of these schemes and investors are left holding the bag.

PROMISSORY NOTES. Many investors seek out safe, fixed-rate investments, especially ones that can boost the interest they earn. One interest-paying investment is the promissory note. These are an important means by which companies raise capital. Legitimate promissory notes are marketed almost exclusively to sophisticated or corporate investors. For sophisticated or corporate investors, promissory notes can be a good investment providing a reasonable reward for those who are willing to accept the risk. Even legitimate notes carry some risk that the issuers may not be able to meet their obligations. However, promissory notes that are marketed broadly to the general public often turn out to be scams. One promissory note scheme was broken up in Ohio last year after fleecing more than 700 investors of $60 million. While fraudulent promissory notes appear to give investors the two things they desire most — higher returns and safety — they may not be worth the paper they’re printed on.

SENIOR INVESTMENT FRAUD. Because they have built up a lifetime of savings seniors continue to face investment fraud by con artists peddling unsecured promissory notes, viatical settlements and other investments that are either fraudulent or unsuitable for them based on their particular financial needs. Before doing business with any investment professional, all investors, especially senior investors, should check with their state securities regulator to determine whether the individual is properly licensed and if there have been any complaints or disciplinary problems. For more information, visit the Senior Investor Resource Center at www.nasaa.org.

HIGH-YIELD INVESTMENTS. A favorite of con artists who promise investors triple-digit returns through access to the investment portfolios of the world’s elite banks. The negative publicity attached to these schemes has caused promoters in recent cases to avoid explicitly referring to “prime banks.” Now it is common to avoid the term altogether and underplay the role of banks by referring to these schemes as “risk-free guaranteed high-yield instruments” or something equally deceptive. One of these schemes was broken up recently in Colorado, but not before defrauding more than 1,000 investors in seven countries of approximately $56 million.

INTERNET FRAUD. The Internet is here to stay, and so is Internet investment fraud. Many of the online scams we see today are merely new versions of schemes that have been fleecing offline investors for years. For example, we have noted an increase on “online boiler room” activity promoting penny or microcap stocks on the Internet. Con artists also are using the Internet to issue and widely distribute bogus news releases to falsely inflate the value of these stocks before cashing out at the expense of unsuspecting investors.

AFFINITY FRAUD. It is only human nature to trust people who are like you. That’s why con artists often use their victim’s religious or ethnic identity to gain their trust and then steal their life savings. No group seems to be immune from fraud. For example, an Ohio man who was not licensed to sell securities was sentenced to 4 years in prison last year and ordered to pay $1.5 million after state regulators determined he targeted African-American investors and eventually sold $7.9 million in fictitious investment certificates to approximately investors by promising rates of return of 30 percent to 400 percent per year.

VARIABLE ANNUITY SALES PRACTICES. Regulators are concerned that variable annuities are being sold to senior investors despite the fact that these products are not suitable investments for most seniors who may need quick access to their money for medical or other emergencies. We also are concerned that investors aren’t being told about high surrender charges and the steep sales commissions agents often earn when they move investors into variable annuities. Some investors also are misled with claims of guaranteed returns when variable annuity returns actually are vulnerable to the volatility of the stock market.

OIL & GAS SCAMS. With oil topping $50 per barrel and ongoing instability in the Middle East, regulators are concerned that con artists will dust off a variety of oil and gas scams once prevalent in the 1980s to lure investors into unsuitable or fraudulent investments – ranging from leases in oil fields to unproven technologies designed to convert common substances into fuel. Last year, for example, a Virginia couple were indicted for operating an oil-and-gas pyramid scheme that lured investors form Kentucky, Kansas, Texas and other states to invest more than $3 million in wells that never existed. In Kansas, a Wichita man was sentenced in 2004 to prison for his role in an oil and gas investment scam that raised over $1 million from 91 investors through telephone sales.

While these are the most common ploys currently being used to cheat investors, con artists and others a continuously coming up with new scams and schemes ranging from investment contracts in ATM machines, pay telephones to pitches for profits in worm farms – yes, you heard me correctly, worm farms. Con artists frequently seek out victims by sending legitimate-sounding e-mails or voice mails to your home or by hosting phony investment seminars.

As I said a few moments ago, education and awareness are an investors best protecting against fraud. When evaluating any investment, you should remember that risk and reward go together. If someone is promising you high returns with no risk, be very, very skeptical, ask lots of questions and get it in writing.

Before making any investment, ask yourself the following questions:

· Has the seller given you written information that fully explains the investment? Make sure you get proper written information, such as a prospectus or offering circular, before you buy. The documentation should contain enough clear and accurate information to allow you or your financial adviser to evaluate and verify the particulars of the investment. Watch for jargon that sounds sophisticated but makes no sense.

· Are claims made for the investment realistic? Some things really are too good to be true. Use common sense and get a professional, third-party opinion when presented with investment opportunities that seem to offer unusually high returns in comparison to other investment options. Pie-in-the-sky promises often signal investment fraud.

· Does the investment meet your personal investment goals? Whether you are investing for long-term growth, investment income or other reasons, an investment should match your own investment goals, and;

· Are the seller and investment licensed and registered in your state? If they aren’t, they may be operating illegally. You can find out by calling my office. we can tell you whether the investment product is licensed for sale in our state and whether the salesperson has a history of wrongdoing. The time to make this call is before you invest. One call can save a lot of money and heartache.

Thank you for your attention. I’ll be glad to answer your questions.

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