Unregistered Securities

Published on: January 13, 2012

Investment News: “Accredited Investor” Net Worth Standard Definition Modified by SEC

Investment attorneys would like to make investors aware that the final rule declaring the net worth standard for “accredited investors” has been adopted by the Securities and Exchange Commission. The SEC still had to adjust its rules to the modification despite the fact that the modified definition was effective upon the enacting of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Investment News: “Accredited Investor” Net Worth Standard Definition Modified by SEC

According to the Securities Act of 1933, unless there is an exemption, such as “accredited investor” status, all U.S. securities sales and offers must be registered. Before the Dodd-Frank Act was enacted, an investor’s main residence, along with its fair market value and indebtedness, were included when calculating an investor’s net worth. In order to be an “accredited investor,” one’s net worth must be at least $1 million.

According to the Dodd-Frank Act’s Section 413(a), when determining if an individual is an “accredited investor,” the value of that person’s primary residence cannot be included. Determining if a person is an “accredited investor” is used to identify people who can withstand the economic risk of investing in unregistered securities. Securities that are unregistered for an indefinite timeframe can result in total investment losses. While personal residence cannot be included when determining an investor’s status, per the Dodd-Frank Act, if there is indebtedness associated with the residence, this amount can still lower the net worth of the investor. This rule will lower the number of individuals that receive “accredited investor” status. However, individuals that were previously considered “accredited investors,” but no longer meet the $1 million threshold because of the rule changes, will be given a limited grandfathering that allows them to continue to receive accredited status for certain “follow-on” investments.

Published on: January 12, 2012

Investment Attorneys Seeking Victims of Self-Directed IRA Fraud

by InvestorLawyers

Stock fraud lawyers are seeking clients that have been the victim of stock broker fraud through the use of self-directed IRAs. Self-directed IRAs are held by a custodian or trustee and allow for investment in a broader set of assets than traditional IRAs. The custodial processes associated with self-directed IRAs gives investors a sense of security and protection. However, this is often not the case. Because self-directed IRAs’ owners are able to hold unregistered securities, due diligence is often neglected by custodians. As a result, these investments are often a vehicle of stock broker fraud.

Investment Attorneys Seeking Victims of Self-Directed IRA Fraud

The most common IRA custodians are broker-dealers and banks. In traditional IRAs, holdings are limited to mutual funds, CDs, firm-approved stocks and bonds. However, custodians for self-directed IRAs may invest in promissory notes, tax lien certificates, real estate and private placement securities. Investments that tie up retirement funds for a time period that is too long, fail to diversify in order to reduce possible loss or contain a risk for loss that is too high are in breach of advisers’ fiduciary duty and brokers’ suitability standard. In addition, early withdrawals come with a penalty that encourages money remains tied up in them longer.

Another significant danger of self-directed IRAs, and a reason they become a target for fraud promoters, is that they often do not require the custodian or trustee of the IRA to perform audits or keep accurate records.

Published on: December 15, 2011

Investment Attorneys Seeking Victims of Inofin Fraud

by InvestorLawyers

The alleged $110 million Inofin fraud has investment attorneys looking for investors who suffered losses as a result of their investments with Inofin. According to the Class Action Complaint filed by the Securities and Exchange Commission in April, 2011, Inofin was in violation of the Massachusetts Uniform Securities Act. The complaint has been filed against Inofin, Inofin President Michael Cuomo, Inofin Chief Operating Officer Melissa George and Inofin Chief Executive Officer Kevin Mann, and alleges that the group sold unregistered securities and acted as a Massachusetts broker-dealer without being registered.

Investment Attorneys Seeking Victims of Inofin Fraud

Despite the fact that Inofin was never registered with the Massachusetts Securities Division of the Offices of the Secretary of the Commonwealth or the SEC, the company allegedly collected around $110 million by selling unregistered securities. Unregistered securities are securities that have not been registered with the Securities and Exchange Commission, and selling them violates the Securities Act of 1933. For more information on unregistered securities, please see the previous blog entry, “Investment Fraud: Unregistered Securities.”

According to the complaint, Inofin and its principal officers violated Section 10(b) (Rule 10b-5) of the Securities Exchange Act of 1934 and Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933. In addition to the selling of unregistered securities, the SEC alleges that material misrepresentations of financial reports were made from 2006 to 2011 in an attempt to hide a negative net worth and the company’s deteriorating financial conditions.

Published on: December 12, 2011

Investment Fraud: Unregistered Securities

by InvestorLawyers

A common form of investment fraud is the selling of unregistered securities. In many cases, investors can recover their losses in securities arbitration. In short, unregistered securities are securities that have not been registered with the Securities and Exchange Commission (SEC). Before a stock, bond or note can be sold to the public, it must be registered with the SEC. In fact, it must be registered before it can even be offered to the public. Any security is considered to be unregistered if it does not have an effective registration statement.

Investment Fraud: Unregistered Securities

While the offering of unregistered securities is a violation of Section 5 of the Securities Act of 1933, there are some exceptions. So when is it legal and when is it illegal? According to Section 5(c) of the Securities Act of 1933, “It shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security, or while the registration statement is the subject of a refusal order or stop order or (prior to the effective date of the registration statement) any public proceeding or examination under section 8.”

Seems fairly cut and dry, so when is it legal? Exemptions to the restriction of the sale of unregistered securities include:

Published on: November 10, 2011

Investors Beware of Promissory Note Scams

by InvestorLawyers

One of the most prominent ways fraudsters are currently targeting investors is through promissory note scams. According to Pat Huddleston, former Security and Exchange Commission enforcer and author of the book “The Vigilant Investor,” promissory note scams are “exploding” — in no small part due to the nature of the scam, which appears to be a reasonable business investment opportunity.

Investors Beware of Promissory Note Scams

What makes promissory note scams so tricky is that investors assume the contract is legally binding. In addition, the fact that the promissory notes promise a return of your investment within nine months, plus interest, promotes the investment as safe. According to Huddleston, “It’s usually a one-page, simple contract that says, ‘I promise to pay the investor this amount of money with these amount of gains at this interest rate by this date.’”

To make the scam seem more reputable, the scammers frequently quote part of the Securities Act which appears to say that the note doesn’t have to be registered with the Securities and Exchange Commission provided its duration is nine months or less. While this is an actual section of the Securities Act, what most investors don’t know is that the exception only applies to the kinds of things that major corporations exchange, like high-grade commercial paper. This section of the act does not apply to the types of notes the average investor can invest in.