1. INVESTMENT FRAUD Heidie George Securities Examiner Division of Securities Department of commerce

2. Utah Division of Securities Mission: Enhance Utah’s business climate by: protecting 1. protecting Utah’s investors through education, 2. enforcement regulation of 2. enforcement and fair regulation of Utah’s investment industry opportunities 3. while fostering opportunities for capital formation.

3. What is a security? (i) "Security" means a: (A) note; (B) stock; (C) treasury stock; (D) bond; (E) debenture; (F) evidence of indebtedness; (G) certificate of interest or participation in a profit-sharing agreement; (H) collateral-trust certificate; (I) preorganization certificate or subscription; (J) transferable share; (K) investment contract; (L) burial certificate or burial contract; (M) voting-trust certificate; (N) certificate of deposit for a security; (O) certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under such a title or lease; (P) commodity contract or commodity option; (Q) interest in a limited liability company; (R) life settlement interest; or (S) in general, an interest or instrument commonly known as a "security," or a certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase an item listed in Subsections (1)(ee)(i)(A) through (R).

4. How Do We Accomplish This? Register Register Securities License License Investment Professionals Examinations Conduct Compliance Examinations Educate Educate Investors Investigate Investigate Investor Complaints Enforce Enforce State Securities Laws Administrative & Civil Actions Criminal Referrals securities.utah.gov

5. Why Is This Important To You? Most common victim?

6. Rule # 1 for Investing: Risk & reward go together and Risk & reward go together and cannot be separated cannot be separated Short-term goals call for low-risk, low- reward investments, but with a longer horizon you can aim higher and take a chance. Fraudsters will try to break the relationship between risk and reward.

7. The Guy Next Door with a “Can’t Miss” Investment Offer “Hey Buddy, have I got a deal for you!”

8. What the Guy Next Door is Really Offering You 1. Ponzi Schemes 2. Unsecured Promissory Notes 3. Senior Investment Fraud 4. Affinity Fraud

9. 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. 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 on investment. 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.

10. Madoff was able to keep his Ponzi running for 40+ years, but all Ponzis eventually collapse ( most of them much sooner ) when: new money can’t keep pace demand money going out.

11. 2. Unsecured Promissory Notes Red Flags to watch out for include: Typically issued by little known, recently created, or non-existent companies. Promise interest rates well above market rates annualized rates of 24% - 60% or higher ! ( 2 - 5% per month or higher, annualized rates of 24% - 60% or higher ! ) The promoter talks about real assets that property or other assets that “guarantee” “guarantee” your investment, no legally but you receive no legally enforceable collateral. enforceable collateral.

12. 3. Senior Investment Fraud Often Claim to be “Senior Specialists” Certified Elder Planning Specialists Senior Benefit Centers Network Senior Financial Survival Workshop Certified Senior Advisors You can help protect the people you care about!

13. 4. Affinity Fraud “I’m your neighbor, I’m your friend, I’m a con man.” Affinity Fraud Video in Utah

14. Crowdfunding online money - raising strategy help finance their projects Crowdfunding is an online money - raising strategy that began as a way for the public to donate small amounts of money, often through social networking websites, to help artists, musicians, filmmakers, and other creative people finance their projects.

15. The concept has recently evolved as a way of assisting small businesses and start-ups looking for capital to help get their business ventures off the ground. On April 5, 2012 the JOBS Act was signed into law, directing the Securities and Exchange Commission (SEC) to create rules exempting crowdfunding from the securities registration laws.

16. Coming Soon... SEC to write rules  JOBS Act directed the SEC to write rules that will change how an individual can raise money online. use the Internet to raise up to $1 million each year by selling investments  Once the rules are written, individuals will be able to use the Internet to raise up to $1 million each year by selling investments in their company to thousands of investors. supporters are no longer donors; they become investors  Because they will be issuing shares in their company in exchange for investment capital, their supporters are no longer donors; they become investors who will expect a financial return for their investment.

17. Disclosure Risks: full and complete disclosure may not be available to investors The information about the investment is limited to what is provided through the funding portal. Investors may need to rely on their own research to determine the issuer’s track record. Because state regulators are not allowed to review crowdfunding issuers or their offerings, full and complete disclosure may not be available to investors.

18. Recovery Risks: Investors may have limited legal ability to take action against the issuer should the investment not perform as represented. limited regulatory oversight Due to limited regulatory oversight over these offerings, investors may be left on their own to pursue costly private lawsuits when things go wrong.

19. Liquidity Risks: Crowdfunding investments are mostly illiquid and investors must be prepared to hold their investments indefinitely. lack of a secondary market It also may be difficult or impossible to resell these securities due to the lack of a secondary market.

20. I CLICKER QUESTION Affinity Fraud: a. Never happens in Utah b. Only happens in Utah c. Uses relationships to gain another individuals trust d. The process by which people raise money through an on-line portal

21. I CLICKER QUESTION Affinity Fraud: a. Never happens in Utah b. Only happens in Utah c. Uses relationships to gain another individuals trust d. The process by which people raise money through an on-line portal