Educational Series Archives

SEC announces new enforcement initiatives to combat fraud

The Securities and Exchange Commission, (the “SEC”) announced today three new initiatives that will build on its Division of Enforcement’s ongoing efforts to concentrate resources on high-risk areas, as follows:

The Financial Reporting and Audit Task Force will concentrate on expanding and strengthening the Division’s efforts to identify securities law violations relating to the preparation of financial statements, issuer reporting and disclosure, and audit failures. Its principal goal will be fraud detection and increased prosecution of violations involving false or misleading financial statements and disclosures.

The Microcap Fraud Task Force will investigate fraud in the issuance, marketing, and trading of microcap securities. These abuses frequently involve serial violators and organized syndicates that employ new media, especially websites and social media, to conduct fraudulent promotional campaigns and engage in manipulative trading strategies to amass ill-gotten gains, largely at the expense of less sophisticated investors. The task force’s principal goal will be to develop and implement long-term strategies for detecting and combating fraud especially by targeting “gatekeepers,” such as attorneys, auditors, broker-dealers, and transfer agents, and other significant participants, such as stock promoters and purveyors of shell companies.

The Center for Risk and Quantitative Analytics (CRQA) will support and coordinate the Division’s risk identification, risk assessment and data analytic activities by identifying risks and threats that could harm investors, and assist staff nationwide in conducting risk-based investigations and developing methods of monitoring for signs of possible wrongdoing. A central point of contact for risk-based initiatives nationwide, CRQA will serve as both an analytical hub and source of information about characteristics and patterns indicative of possible fraud or other illegality.

|Educational Series, Fraud|

Updated guide from the FTC: fighting identity theft with Red Flags Rule for businesses

On June 12, 2013, the Federal Trade Commission (the “FTC”) issued revised guidance designed to help businesses comply with the requirements of the Red Flags Rule, which protects consumers by requiring businesses to watch for and respond to warning signs or “red flags” of identity theft. The guidance outlines which businesses – financial institutions and some creditors – are covered by the Rule and what is required to protect consumers from identity theft.

The FTC enforces the Red Flags Rule with several other agencies. Its guide has tips for organizations under FTC jurisdiction to determine whether they need to design an identity theft prevention program, and can help businesses spot suspicious patterns and prevent the costly consequences of identity theft.

|Educational Series, Guidance|

Virginia takes workers’ privacy to a new level

Starting July 1, 2013, new Virginia Code §40.1-28.7:4 provides that “employers shall not, unless a listed exemption applies, be required to release, communicate, or distribute to a third-party, any current or former employee’s personal identifying information.”

In this context, “personal identifying information” is defined as a “home telephone number, mobile telephone number, e-mail address, shift times, or work schedule.” Exceptions permitting the disclosure of such information include requirements of federal laws that supersede state statutes, court orders, judicial warrants or a subpoena in a civil or criminal case. Although there is no penalty, the statute establishes a public policy that endorses protection of the personal identifying information and could be used in a lawsuit against employers.

|Educational Series, Legislation|

CFPB’s database is now searchable by state and includes complaints about credit reporting

On May 31, 2013 the Consumer Financial Protection Bureau (“CFPB”) announced that its Consumer Complaint Database, now searchable by state, has been expanded to include credit reporting and money transfer complaints. In addition to these two new categories, the database, which can be accessed at http://www.consumerfinance.gov/complaintdatabase/, includes complaints relating to credit cards, mortgages, student loans, bank accounts and services, and consumer loans.

When submitting a complaint about credit reporting, consumers can select from five common issues, which are all searchable on the updated database: incorrect information on a credit report; problems with a credit reporting agency’s investigation; improper use of a credit report; not being able to get a credit report or credit score; and problems with credit monitoring or identity protection services.

|Educational Series|

FTC says data brokers willing to sell consumer information and disregard FCRA

On May 7, 2013, the Federal Trade Commission (the “FTC”) announced the results of its testing operation, revealing that 10 companies out of the 45 that the FTC approached seemed to be willing to sell consumer information without complying with the Fair Credit Reporting Act (“FCRA.”) The FTC reported that its staffers asked the companies about buying the information for purposes such as determining creditworthiness, suitability for employment or eligibility for insurance.

Six of the 10 companies appeared willing to sell consumer information for employment purposes, two for insurance decisions and two for pre-screened lists of consumers to use in making firm offers of credit. The data brokers were contacted again by the FTC, but this time in the form of letters, warning that their practices may violate the FCRA. The warning letters are part of an ongoing international effort spearheaded by the Global Privacy Law Enforcement Network, an informal group of consumer protection and privacy agencies.

|Criminal Activity, Educational Series|

CFPB’s expanded complaint database goes live

The Consumer Financial Protection Bureau (the “CFPB”) announced that the nation’s largest database of federal consumer financial complaints is live and open for public viewing.

The CFPB’s recent launch significantly expands the Consumer Complaint Database from about 19,000 credit card complaints in 2012 to more than 90,000 complaints on mortgages, student loans, bank accounts and services, other consumer loans, and credit cards. It also includes product sub-categories, such as reverse mortgages, conventional fixed mortgages and adjustable mortgages, and home equity loans or lines of credit. Complaints are entered only after the company provides a response or after it has had the complaint for 15 days, whichever comes first. The CFPB states that while the allegations in the complaints are not verified, a commercial relationship between the consumer and the company is substantiated before the complaint is added to the database.

According to the CFPB, the database now has more than one million data points covering approximately 450 companies, and includes information such as the type of complaint, date of submission, consumer’s ZIP code, and the company’s name. The database also provides information about the actions taken on the complaint, i.e., whether the company’s response was timely, how the company responded, and whether the consumer disputed the response.

To file a complaint with the CFPB, consumers can:>

File online at www.consumerfinance.gov/Complaint;

Call 1-855-411-CFPB (2372) or TTY/TDD phone number at 1-855-729-CFPB (2372);

Fax to: (855) 237-2392; or

Mail to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, IA 52244.

|Educational Series|

Most service providers are not subject to Red Flags Rule

The Federal Trade Commission (the “FTC”) interim final rule which became effective February 11, 2013 confirms that most service providers are not subject to the Red Flags Rule. The rule clarifies the meaning of “creditor” ensuring that its definition is consistent with the revised definition of that term in the amended Fair Credit Reporting Act (the “FCRA”). A “creditor” must develop and implement a written identity theft prevention program premised on identifying “red flags” of identity theft only if in the ordinary course of business, the “creditor” regularly: 1) obtains or uses consumer reports in connection with a credit transaction; 2) furnishes information to consumer reporting agencies in connection with a credit transaction; or 3) advances funds to or on behalf of a person, in certain cases.

However, any entity collecting consumer data must remain vigilant in how it collects, uses and safeguards that data. The FTC may pursue enforcement actions under the FTC Act when a company does not take reasonable privacy protection measures scaled to the risk level of their business practices.

|Educational Series, Legislation|

Congress questions legality of “The Work Number” operated by Equifax

Seven members of Congress wrote a letter last month to Equifax asking for more information about its employment verification subsidiary, The Work Number, which according to a statement made by Jackie Speier (D-California), “appears to have operated under the radar, with little public awareness of the vast trove of

[payroll and other] sensitive data it was gathering.” Speier asserted that “Equifax needs to explain exactly how it is using this data, and provide evidence that The Work Number does not pose a threat to the privacy of 190 million Americans.”

While companies say that they sign up with The Work Number because it gives them a convenient way to outsource employment verifications, the seven members of Congress are disturbed by the fact that “… this massive database appears to generate revenue using consumers’ sensitive personal information for profit.”

|Educational Series|

Revamped Form 1-9 makes its debut

On March 8, 2013, the U.S. Citizenship and Immigration Services (the “USCIS”) announced that its newly revised Form I-9 is to be used immediately. Notably, as indicated in the Federal Register, the USCIS granted companies until May 7, 2013 to implement the new form, which purportedly has been designed to minimize completion errors. This 60-day grace period allows employers time to adjust their human resource processes, and modify their software. The USCIS has also updated its “Handbook for Employers – Guidance for Completing the Form I-9” (3.8.13 version) to correspond to the new form, and is holding webinars to educate companies in the form’s usage.

The USCIS noted that employers do not need to complete the new form for employees for whom they already have a proper Form I–9 on file, unless re-verification applies. Unnecessary verification may violate the anti-discrimination provision of section 274B of the INA, 8 U.S.C. 1324b, which is enforced by the DOJ’s Office of Special Counsel for Immigration Related Unfair Employment Practices.

|Educational Series, Employment Decisions|

13 Things to Know About Investing

The Securities & Exchange Commission (the “SEC”) recently released an educational bulletin to help investors make informed financial decisions and avoid common scams. Its 13 points include:

Check the investment professional’s background.
Details about experience and qualifications are available through the Investment Adviser Public Disclosure website and FINRA BrokerCheck.
Be mindful of fees associated with buying, owning, and selling an investment product.
Expenses vary from product to product, and even small differences in these costs can translate into large differences in earnings over time. An investment with high costs must perform better than a low-cost investment to generate the same returns.
Diversification can help reduce the overall risk of an investment portfolio.
By picking the right mix, you may be able to limit losses and reduce the fluctuations of investment returns without sacrificing too much in potential gains. Some investors find that it is easier to achieve diversification through ownership of mutual funds or exchange-traded funds rather than through ownership of individual stocks or bonds.
Paying off high-interest debt may be the best “investment” strategy.
Few investments pay off as well as, or with less risk than, eliminating high-interest debt on credit cards or other loans.
Promises of high returns, with little or no associated risk, are classic warning signs of fraud.
Every investment carries some degree of risk and the potential for greater returns comes with greater risk. Ignore the so-called “can’t miss” investment opportunities or those promising guaranteed returns or, better yet, report them to the SEC.
Any offer or sale of securities must be either registered with the SEC or exempt from registration.
Otherwise, it is illegal. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
Do not invest in a company about which little or no information is publicly available.
Always check whether an offering is registered with the SEC by using the SEC’s EDGAR database or contacting the SEC’s toll-free investor assistance line at (800) 732-0330.
Investing heavily in shares of any individual stock can be risky.
In particular, think twice before investing heavily in shares of your employer’s stock. If the value declines significantly, or the company goes bankrupt, you may lose money and there’s a chance you might lose your job, too.
Active trading and some other common investing behaviors actually undermine investment performance.
According to researchers, other common investing mistakes include focusing on past performance, favoring investments from your own country, region, state or company, and holding on to losing investments for too long and selling winning investments too soon.
Con-artists are experts at the art of persuasion, often using a variety of influence tactics tailored to the vulnerabilities of their victims.
Common tactics include phantom riches (dangling the prospect of wealth, enticing with something you want but can’t have), source credibility (trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience), social consensus (leading you to believe that other savvy investors have already invested), reciprocity (offering to do a small favor for you in return for a big favor) and scarcity (creating a false sense of urgency by claiming limited supply).
Some investments provide tax advantages.
For example, employer-sponsored retirement plans and individual retirement accounts generally provide tax advantages for retirement savings, and 529 college savings plans also offer tax benefits.
Mutual funds, like other investments, are not guaranteed or insured by the FDIC or any other government agency.
This is true even if you buy through a bank and the fund carries the bank’s name.
The key to avoiding investment fraud is using independent information to evaluate financial opportunities.
Many investors may have avoided trouble and losses if they had asked questions from the start and verified the answers with sources outside of their family, community, or group. Whether checking the background of an investment professional, researching an investment, or learning about new products or scams, unbiased information is a significant advantage for investing wisely.

|Educational Series, Fraud|