Investment

Investor Alert – Fraudsters Target CARES Act Retirement Savings Relief

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If you are considering using provisions under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to withdraw and reinvest money from your retirement savings, be aware that fraudsters may be targeting you. Be wary when someone encourages you to use your retirement savings to make new investments. When considering new investments, do your own research and consider contacting an unbiased investment professional or an attorney.

CARES Act Retirement Savings Benefits

The CARES Act includes provisions designed to provide relief for individuals who are financially impacted by the COVID-19 pandemic. Among these provisions are relief efforts that allow individuals to pay back amounts withdrawn from qualified retirement plans without paying income tax on the withdrawal. The CARES Act also allows individuals to take out larger retirement plan loans with limited income tax consequences. For those suffering financial hardship, the CARES Act benefits can provide much-needed liquidity. Unfortunately, fraudsters and dishonest promoters are using this crisis to encourage investors to make high risk or high fee investments that may not be in the investor’s best interest.

How Fraudsters Are Targeting Retirement Savings

Promoters or investment professionals may contact you with a recommendation that you take advantage of the CARES Act benefits to withdraw money from your retirement savings and invest that money. If you have been contacted with such a recommendation, be very wary. The individual who contacted you may be part of a predatory scheme to profit off your retirement savings. Always be sure to verify that the person you are speaking with is licensed to give advice or sell investments. Contact your state securities regulator or use these free tools from the SEC and FINRA to verify the license and history of an investment professional.

Important Considerations for Using Your Retirement Accounts to Make New Investments

There are several important drawbacks you should consider before you use retirement funds to make new investments. The promoter may charge you high fees. Inquire how much of your money will be invested for you and how much will go to the person managing the investment. Liquidity – whether you can easily cash out of the investment – can be very important in today’s uncertain environment. Make sure to ask whether there are any fees for early withdrawal or sale. Consider the current value of your retirement investments. If the market is down when you withdraw retirement savings, you may not recover those losses when the market rebounds. If you invest the money that you take out as a loan from your retirement savings, you may have difficulty repaying the loan if the investment performs poorly.

Darlene Pasieczny, AttorneyDarlene Pasieczny is a fiduciary and securities litigator at Samuels Yoelin Kantor LLP.  She represents clients in Oregon and Washington with matters regarding trust and estate disputes, financial elder abuse cases, and securities litigation. She also represents investors nationwide in FINRA arbitration to recover losses caused unlawful broker conduct.  Her article, New Tools Help Financial Professionals Prevent Elder Abuse, was featured in the January 2019, Oregon State Bar Elder Law Newsletter.

Featured image courtesy of SYK paralegal Torrie Timbrook.

Victims of COVID-19 Scams & Cybercrime Need to Act Fast

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Victims of COVID-19 Scams and Cybercrime Need to Act Fast – FBI’s Financial Fraud Kill Chain May Recover Fraudulent Wire Transfers

Cybercrime is becoming ever more pervasive, and with so many more people working at home during the COVID-19 coronavirus pandemic, the risk of a fraudulent wire transfer and other financially motivated crimes is higher than ever.

Fraudsters use crisis events to target good-hearted investors.

The SEC and other federal and state regulatory agencies are paying close attention to COVID-19-related financial fraud, such as fraudulent stock promotions and unregistered offerings, charitable investment scams, and community-based financial frauds. Since February 2020, the SEC has suspended stock trading in connection with COVID-19 for at least 23 companies, and has initiated at least five emergency enforcement actions against companies seeking to exploit investors with false and misleading promises. These investment scams include fraudulent claims of N95 mask production, and manufacturing COVID-19 blood tests and thermal scanners for fever detection.

The FBI’s Financial Fraud Kill Chain:  A Resource for Recovering Stolen Funds

Unfortunately, while regulatory agencies work hard to shut down fraudulent scams, it can be difficult to impossible to recover money from the fraudsters.  Especially if the investor funds or cybercrime victim’s bank account funds have been transferred overseas. The Financial Fraud Kill Chain (FFKC), a program administered by the FBI, is a critically important tool that can cut off large international wire transfers. But victims need to act fast, within 72 hours of the wire transfer.

How does the Kill Chain work?

Financial fraud scams are often international, with unsuspecting investor money transferred from the United States to overseas financial institutions via international wire transfers through the SWIFT system. Cybercriminals hacking email accounts may use personal information to prey on individuals (“I’m traveling overseas and need money for a plane ticket home”). Businesses are also targets of cybercriminals. For example, corporate account takeovers and business e-mail compromise scams may be used to redirect legitimate wire transfers to fraudulent overseas accounts.

The Kill Chain utilizes the FBI’s international relationships to help U.S. financial institutions recover large international wire transfers. If the Kill Chain is activated, the FBI can prevent the withdrawal of stolen funds by cutting off the SWIFT transfer.

What kind of transfer qualifies to initiate the Kill Chain?

The FFKC can only be activated if:

  • The wire transfer is $50,000 or more;
  • The wire transfer is international;
  • A SWIFT recall notice has been initiated; and
  • The wire transfer occurred within the last 72 hours.

To initiate the FFKC process, you should immediately contact your local FBI field office and also notify your financial institution that originated the transfer. Because time is of the essence, call your local FBI office and fill out an on-line complaint through the FBI’s Internet Crime Complaint Center (IC3).

Providing the FBI with more information will allow the agency to respond more effectively, but all complaints should include the following:

  • Victim business name and address,
  • Transaction type, amount, and date,
  • Originating bank name and address,
  • Beneficiary bank name and address,
  • Beneficiary account number,
  • Beneficiary bank location (if known), and
  • Intermediary bank name (if known).

If you or your business has been the victim of wire transfer fraud, consider still reporting it to the FBI even if the fraud does not meet the above criteria to initiate the Kill Chain.

And as we all work to protect ourselves and each other during the coronavirus pandemic, COVID-19-related investments scams should be reported to the SEC and your state’s securities regulator. 

Darlene Pasieczny, AttorneyDarlene Pasieczny is a fiduciary and securities litigator at Samuels Yoelin Kantor LLP.  She represents clients in Oregon and Washington with matters regarding trust and estate disputes, financial elder abuse cases, and securities litigation. She also represents investors nationwide in FINRA arbitration to recover losses caused unlawful broker conduct.  Her article, New Tools Help Financial Professionals Prevent Elder Abuse, was featured in the January 2019, Oregon State Bar Elder Law Newsletter.

FINRA Issues Warning: Pandemic Volatility Highlights Oil-Linked ETPs Unsuitable for Some Investors

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FINRA, the Financial Industry Regulatory Authority, issued an eye-catching warning in Regulatory Notice 20-14 about a particularly complex and risky type of security: Oil and Gas Exchange Traded Products, or ETPs. High concentrations in the oil and gas sector, especially with complex, risky, and volatile products like ETPs, may become a frequent subject for investor litigation in the upcoming year and fallout of the Coronavirus pandemic. To quote FINRA, “the performance of such products may be linked to unfamiliar indices or reference benchmarks, making them difficult for the average investor to comprehend.”

Oil and Gas-linked ETPs

These products are engineered to be complicated, risky, and volatile. While potentially paying out well above conservative fixed income investments, they carry the risk of massive and sudden drops in valuation. ETPs may be indexed to futures contracts or other market benchmarks, so their “value” is a few steps away from the actual daily value of the underlying commodity. More exotic offerings include leveraged and inverse commodities-linked ETPs, which seek to deliver multiples or the opposite of the return of an oil linked index.

This particular underlying commodity – oil – comes with its own set of risks. The benchmark price of oil was already under severe downward pressure at the end of 2019, before the jolting drop in demand from the impact of COVID-19. The combination has meant that one ETP shed 41{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of its value in one week in April. Others have been forced to liquidate, or reconfigure their investment objectives.

It’s all there in FINRA’s authoritative detail in RN 20-14, should you want a refresher on the oil market’s conditions of “contango” (future prospects dim), or “backwardation” (with good investment opportunities) or “super-contango” (where we were in April).

Suitability

Scratching your head over “contango”? The term itself is a good warning sign. The average retail investor looking to put their retirement savings in a safe, moderate or conservative portfolio, should not be making decisions that require a technical dictionary for every other word. And if a financial professional cannot adequately analyze and explain the function and risks of betting on the futures market with an ETP, or why that is an appropriate risk compared to other investments, the recommendation may fail FINRA’s suitability standard.

FINRA has been clear in interpreting its own Rule 2111 regarding suitability: if a broker does not sufficiently understand the product, then a recommendation to purchase that product is not suitable for ANY investor:

A member’s or associated person’s reasonable diligence must provide the member or associated person with an understanding of the potential risks and rewards associated with the recommended security or strategy. The lack of such an understanding when recommending a security or strategy violates the suitability rule.

I noted in a prior post that it is wise to review investment statements during market volatility. When the market is acting like a roller coaster, it can reveal otherwise hidden problem areas. That might include over-concentration in a certain sector, or investments in complex products such as commodity-linked ETPs. Unsuitable investment recommendations may lead to claims against an advisor or firm for recoverable losses.

And if you are a financial advisor taking on a new client with a portfolio that has been inappropriately allocated, consider suggesting to your client a confidential review with a securities attorney. You may be able to help your client recover some of the damage caused by a prior advisor’s poor investment recommendations.

Darlene Pasieczny, AttorneyDarlene Pasieczny is a fiduciary and securities litigator at Samuels Yoelin Kantor LLP.  She represents clients in Oregon and Washington with matters regarding trust and estate disputes, financial elder abuse cases, and securities litigation. She also represents investors nationwide in FINRA arbitration to recover losses caused unlawful broker conduct.  Her article, New Tools Help Financial Professionals Prevent Elder Abuse, was featured in the January 2019, Oregon State Bar Elder Law Newsletter.

Attorneys Blachly & Pasieczny Present on Combating Financial Elder Abuse

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“Recent Tools to Combat Financial Elder Abuse”: a closer look at mandatory and permissive conduct for Oregon securities professionals.

Today, over 46 million Americans are 65 years of age or older. This accounts for nearly 15{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of the population. According to the Population Reference Bureau, that number is projected to more than double by the year 2060. It will reach an estimated 98 million and 24{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of the U.S. population. Approximately 1 out of every 10 Americans, age 60 and older have experienced some form of elder abuse. Estimates of financial elder abuse and fraud costs range from $2.9 billion to $36.5 billion annually

On Thursday, February 21st, SYK attorneys Victoria Blachly and Darlene Pasieczny will speak to the Oregon State Bar Securities Regulation Section about financial elder abuse in the securities industry. Their program “Recent Tools to Combat Financial Elder Abuse: Mandatory and Permissive Conduct Under FINRA Rules and Oregon Law for Securities Professionals,” will take a closer look at Oregon statues and FINRA rules regarding mandatory and permissive conduct for brokers and investment advisers when there is reasonable suspicion of financial abuse.

Meet the experts – Victoria Blachly and Darlene Pasieczny

Victoria Blachly is a fiduciary litigator, licensed in Oregon and Washington. She represents individual trustees, corporate trustees, beneficiaries, and personal representatives in often difficult and challenging cases including:

  • Trust and estate litigation
  • Will contests
  • Trust disputes
  • Undue influence
  • Capacity cases
  • Claims of fiduciary breach
  • Financial elder abuse cases
  • Petitioning for court instructions
  • Contested guardianship and conservatorship cases.

Darlene Pasieczny is a fiduciary and securities litigator. She represents clients both in Oregon and Washington, with matters regarding trust and estate disputes, financial elder abuse cases, securities litigation, and represents investors nationwide in FINRA arbitration. Her article, New Tools Help Financial Professionals Prevent Elder Abuse, was featured in the January 2019, Oregon State Bar Elder Law Newsletter.

Report abuse

If you suspect someone is being abused, neglected, or financially exploited, please reach out to the Oregon Department of Human Services. Also, you may consider hiring a private attorney to help employ legal tools to prevent harm, or recover financial losses.

SYK Attorney Darlene Pasieczny to Moderate “Hybrid Advisers” Panel

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Hybrid Advisers: Regulation and Claims Regarding Dual‐Registered Brokers and RIAs

Moderator, Darlene Pasieczny, Samuels Yoelin Kantor LLP; Speakers Jeffery Schaff, Ardor Fiduciary Services, Ltd., and James Wrona, VP and Associate General Counsel, FINRA.  This panel will explore issues in regulation and customer dispute resolution when a culpable financial adviser “wears two hats” as both a FINRA‐licensed broker and SEC‐licensed registered investment adviser. When is the brokerage firm responsible for conduct by its dual‐registered associated person? How do FINRA and the SEC parse enforcement issues for these hybrid advisers? The panel will discuss trends in customer arbitration cases, recent case law decisions, compliance and enforcement.

Tuesday, October 9, 2018

Securities Law Seminar at the 27th PIABA Annual Meeting

Bonita Springs, Florida

Find registration information here.

Darlene Pasieczny’s practice at Samuels Yoelin Kantor LLP focuses on all stages of corporate and securities law issues, securities litigation and FINRA arbitration, as well as fiduciary litigation in trust and estate disputes, and elder financial abuse.

Portland: 503.226.2966

Lake Oswego: 503.226.2966

Hood River: 541.436.0777

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