Investor Alert: Investment Seminars – Trading Seminar Fraud
Oct. 1, 2011
The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn investors of potential fraud they may encounter at investment seminars that purport to teach investors trading strategies that will allow them quickly and easily to make money trading securities. In particular, SEC staff warns that some trading seminar promoters may use misleading or untrue statements to lull investors into purchasing expensive products such as trading software or classes. Investors should be prepared to recognize and avoid some of the potential fraudulent conduct they may encounter at investment seminars that purport to teach investors how to trade securities.
Signs of Trading Seminar Fraud
Claims that trading strategies are “easy” or “simple.” Trading strategies are not “simple” or “easy.” Securities transactions occur in complex financial markets. Investors should be skeptical of anyone making those kind of claims.
Be mindful of “guaranteed” returns. Trading any type of securities carries some degree of risk, and the level of risk typically correlates with the return an investor can expect to receive. Low risk generally means low yields, and high yields typically involve higher risk. Fraud promoters often spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can't miss.” Don't believe it. High returns represent potential rewards for investors who are willing and financially able to take big risks.
High-pressure sales tactics. Promoters sometimes use high-pressure sales tactics to get investors to buy their trading products and classes without thinking it through. They might claim there are only a few spots left or that getting in immediately will allow investors to see the greatest returns. Any reputable promoter of trading products or classes will let investors take their time to do research and will not pressure for an immediate decision.
Sounds too good to be true. Generally, if a strategy for trading securities sounds too good to be true, it probably is. No strategy for trading securities is fool-proof.
Ways to Avoid Trading Seminar Fraud
Investigate before the seminar. Before attending any investment seminar on trading strategies, investors should research the people or company promoting the investment seminar as well as the trading products or classes being sold at the seminar to see if they have any history of complaints, fraud, or criminal activity. Investors can check-out speakers at seminars through the following resources:
- For all speakers start by checking an internet search engine.
- For speakers that are broker-dealers, use FINRA’s BrokerCheck website
- For speakers that are an investment adviser, use the SEC’s Investment Adviser Public Disclosure website
- For all speakers, also contact your state securities regulator. Investors can find the contact information for their state securities regulator at the North American Securities Administrators Association’s website
Ask questions. Investors should always ask questions regarding purported trading strategies. Some questions should include:
- How much will it cost to learn the trading strategy? Investors should determine what up-front and continuing costs are associated with both learning and implementing the trading strategy.
- What are the risks of this trading strategy? Any trading strategy has risks. Any presentation regarding how to trade securities should have a balanced discussion of benefits and risks. Investors should be wary of any trading strategy that has “no” risks.
Be skeptical of claims of past trading success. Some promoters attempt to validate their trading strategies’ effectiveness by highlighting the past trading success of “former students” that have used their trading strategies. Some promoters have these “former students” appear at their investment seminars to talk about their past trading success. Fraud promoters may provide false or misleading trading records to demonstrate these past trading successes. Investors should always be mindful of any claims regarding past trading success. Past trading success is not an indication of future trading success. Furthermore, investors should independently verify whether the past trading success stories and records are accurate.
Recent SEC Cases Involving Trading Seminars
Some recent examples of SEC cases that involve trading seminars include:
SEC v. Long Term-Short Term, Inc., d/b/a BetterTrades and Freddie Rick
The SEC filed a complaint alleging that certain BetterTrades instructors falsely claimed to be highly successful options traders using the strategies taught by BetterTrades. In marketing materials, the defendants also claimed that certain Company instructors were successful, active traders. The complaint alleges that the defendants acted recklessly in making these claims without verifying their accuracy, despite red flags that the claims were false. The SEC settled this matter
SEC v. Investools Inc., Michael J. Drew, and Eben D. Miller
The SEC filed a complaint against the defendants alleging that they made false and misleading statements to induce investors into purchasing their trading products. Investools sold instruction, software and personal coaching to investors who want to learn how trade options and other securities. The complaint alleges that two employees of Investools misleadingly portrayed themselves as expert investors who made their living trading securities in order to induce investors into believing they would also become successful traders if they purchased Investools trading products. The SEC settled this matter.
SEC v. Linda Woolf, David Gengler, Hands on Capital, Inc., and Lashaico, Inc.
The SEC filed a complaint against the defendants alleging that they used false statements to induce investors into believing they would make extraordinary profits trading securities if they purchased “Teach Me to Trade” (TMTT) packages of personal mentoring, software, and classes. The complaint alleges that TMTT conducted nationwide investor workshops that purported to teach investors the secrets to making money in the stock market. The complaint alleges that two of TMTT’s former employees made false and misleading statements in televised infomercials and investor workshops to convince investors they would make extraordinary profits trading securities if they purchased TMTT’s trading products and services.
For additional educational information for investors, see the SEC’s Office of Investor Education and Advocacy’s homepage and the SEC’s Investor.gov website. For additional information related to avoiding fraud, please also see the “Avoiding Fraud” section of Investor.gov.