utah division of securities keith woodwell director, utah division of securities division of...

Utah Division of Securities

Keith WoodwellDirector, Utah Division of Securities

Division of Securities Update:Current Trends, New Legislation, Staying out of Trouble, and Common Scams

More about


• Who: Utah State Government Agency, Department of Commerce;

• What: Protect Investors, Promote Commerce, Regulate Industry

• When: Office Hours- M-F 8 am-5 pm

• Where: Heber Wells Building, 160 E. 300 S. Salt Lake City(801) 530-6600www.securities.utah.gov


1. Scintillating State Securities Statistics Is the securities industry growing or shrinking in Utah? What

about securities fraud in Utah?

2. Windfalls for Willing Whistleblowers Utah’s Securities Fraud Reporting Program Act

3. Problem Products and Practices From selling away to exotic ETFs to secondary liability for

finders in a Ponzi scheme.

4. Scanning for Scams We need your help in reporting and stopping these common

scams.


Scintillating State Securities Statistics

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

80,000

85,000

90,000

95,000

100,000

105,000

Broker-Dealer Agents Licensed in Utah

Broker-Dealer Agents Licensed in Utah



FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

0500

1,0001,5002,0002,5003,0003,5004,0004,500

Investment Adviser Representatives Licesned in Utah

Investment Adviser Representatives Licesned in Utah



FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

0

50

100

150

200

250

300

Complaints ReceivedNew Cases Filed



FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Fines AssessedFines Paid



FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

0

5

10

15

20

25

30

35

Criminal Cases Filed

Criminal Cases Filed



Utah ranks 34th among the 50 states in terms of population. Some other Utah rankings among the 50 states:• 14th in number of complaints received• 8th in number of enforcement actions filed• 8th in total amount of fines imposed• 31st in number of enforcement staff


Windfalls for Willing Whistleblowers

The Problem: Most securities fraud cases are not reported until after the possibility of meaningful recovery for the investors has been exhausted.

The Solution: Incentivize victims and insiders to come forward early in the process.


Securities Fraud Reporting Program Act(Utah Code Ann. § 61-1-101 Et. Seq.)

• Applies to conduct on or after May 10, 2011.• Provide “original information” leading to successful

enforcement action with monetary sanction exceeding $50,000.

• Eligible for an award of up to 30% of sanction actually collected.

• Includes protections for employees reporting misconduct.


Problem Products and Practices

The Six Most Common Types of Violations

50 States Utah

1. Fraud 1. Fraud

2. Unlicensed Individual or Firm 2. Unlicensed Individual or Firm

3. Unregistered Securities 3. Fail to Supervise

4. Dishonest/Unethical 4. Unregistered Securities

5. Fail to Supervise 5. Books and Records

6. Suitability 6. Suitability


Problem Products and Practices

The Six Most Common Violative Products or Practices

50 States Utah

1. Reg D / Rule 506 1. Reg D / Rule 506

2. Ponzi Schemes 2. Real Estate

3. Real Estate 3. Ponzi Schemes

4. Oil and Gas 4. Affinity Frauds

5. Structured Products 5. Third Party Custodians

6. Hedge/Private Equity Funds 6. Precious Metals


Problem Products and PracticesIssues We Are Focused On:• Selling away• Insurance agents selling securities

without a license• LEAP programs• Structured products; exotic ETFs

and ETNs• Fix and flip real estate schemes

Recognizing and Avoiding

Investment Fraud

Public Service Ads & Billboards

Red Flags Commercial

Con ManCommercial

The Guy Next Door with a “Can’t Miss” Investment Offer

“Buddy, have I got a deal for you!”

The Red Flags

Promise of High Returns Promise of Little or No

Risk Prey on Investors’ Trust High Pressure Sales

Tactics

1. Ponzi Schemes2. Start Up Companies3. Precious Metals Schemes4. Crowd-Funding5. Affinity Fraud

What the Guy Next Door is Really Offering You

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.

• 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.

1. The Ponzi Scheme

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

1. The Ponzi Scheme

2. Start-Up Companies

New companies typically require capital ($$$) in order to start the operations of the business.

Watch out for: Offers of stock that you

can not easily resell. Investments in

unsecured promissory notes.

2. Start-Up Companies

Little known, recently created, or non-existent companies

Interest rates well above market rates (2-5% per month)

The promoter talks about real property or other assets that “guarantee” your investment, but you receive no legally enforceable collateral.

Lack of information regarding management or financials

Claims of the investment having “no risk,” or being guaranteed

Red Flags Include:

3. Precious Metals Schemes

Precious metal schemes come in a variety of forms…and metals. Investments can include opportunities to own a portion of the mining company, the mine itself, or used for capital to operate the mines. A variable form of the investment also includes the purchase of precious metals, which the seller will maintain and “store” for the purchaser.

3. Precious Metals Schemes

Legitimacy of company “Secret” extraction process Promises of greater than

average returns (Nevada gold mines average 0.04 to 0.20 troy ounces of gold per ton)

Reward v Risk

4. Crowd-Funding

Started with small businesses seeking donations through the internet. New law (JOBS Act) will allow small businesses to sell their stock to small investors via the internet.

Indiegogo.com

Kickstarter.com

4. Crowd-Funding

Start-up companies are the most risky.

Stock cannot be easily resold.

Information about the company may be limited.

Could be used by con artists to set up bogus companies.

5. Affinity Fraud

Affinity fraud uses common membership in a church, family, tribe, etc.

“I am also a member of your _________ so you can trust me.”

Name Dropping -- Same “deal” was made with a prominent leader of your organization.

securities.utah.gov

Check Out an Investment

Complaints

Questions?

Keith WoodwellUtah Division of Securities

801-530-6600www.securities.utah.gov

utah division of securities keith woodwell director, utah division of securities division of...

Documents

securities industry

securities fraud cases

utah rankings

utah state government

suitability slide

precious metals slide

common scams

common violative products