Help Teach Your Clients How To Avoid Investment Scams

Clients Who Want To Chase the Latest Hot Investment Opportunity Can Be Exposed To Scams


Investment scams are numerous and play upon investor excitement and hunger for windfall profits. Unfortunately, investor excitement can cloud better judgment and make clients easy prey for unscrupulous individuals ready to take advantage of this exuberance. The recent run up of Bitcoin and other cryptocurrencies is creating fertile ground for investor scams.

Cryptocurrency is a digital currency in which encryption techniques are used to generate units of currency, which operate independently of a centralized bank. Cryptocurrencies have seen an explosion in value, particularly issues such as Bitcoin, which has not gone unnoticed by investors or regulators.

In December 2017 Jay Clayton, the Chairman of the Securities and Exchange Commission (“SEC”), issued a public statement discussing the SEC’s views and concerns about cryptocurrencies and initial coin offerings (“ICOs”) [1].  In the statement, Chairman Clayton made the following comment:

“The cryptocurrency and ICO markets have grown rapidly. These markets are local, national and international and include an ever-broadening range of products and participants. They also present investors and other market participants with many questions, some new and some old (but in a new form), including, to list just a few:

  • Is the product legal?  Is it subject to regulation, including rules designed to protect investors?  Does the product comply with those rules?
  • Is the offering legal?  Are those offering the product licensed to do so?
  • Are the trading markets fair?  Can prices on those markets be manipulated?  Can I sell when I want to?
  • Are there substantial risks of theft or loss, including from hacking?”

The public statement also contained information that was directed to investors for educational purposes and industry professionals for regulatory and investor protection considerations.

During 2018 there have been numerous signs of the SEC’s increasing awareness and concerns over cryptocurrencies. For example, according to a CNBC article published in March 2018[2], the SEC subpoenaed numerous entities and individuals in the cryptocurrency industry, including Michael Arrington’s $100 million cryptofund.

In addition, to further help investors spot potential cryptocurrency investment scams, the SEC recently created “”, which provides a unique approach to education.

Introducing “”

The SEC has created a fake website called “”.   In a recent press release issued by the SEC regarding[3], they stated the following:

“We created the bogus site as an educational tool to alert investors to possible fraud involving digital assets like crypto-currencies and coin offerings.”

The website has been customized to generally mimic other fraudulent offerings and anyone that clicks on the “Buy Coins Now” link is redirected to an SEC webpage, which states “If You Responded To An Investment Offer Like This, You Could Have Been Scammed – HoweyCoins Are Completely Fake!”, and provides information on red flags investors need to consider to help identify investment fraud.

A Great Opportunity to Educate At-Risk Clients

As most investment professionals know, one sure sign of an investment scam is when the investment is touted as a “can’t miss” opportunity that has little or no risk.   However obvious though, this marketing tactic continues to lure in naive investors that continue to fall prey to these types of scams.  This makes it imperative that financial professionals help educate their clients on the dangers of chasing the latest investment fad and how to identify potentially fraudulent investments.

While the website may appear a bit over the top, it provides an excellent way to educate susceptible clients. For example, financial firms can:

  • Direct clients to the site and discuss during in-person meetings;
  • Include reference to the website and outline the red flags during client seminars;
  • Send email communications to clients deemed to be susceptible; and
  • Create an educational pamphlet or brochure that is provided to prospects and clients.

Educating clients and helping to prevent them from becoming the victims of unscrupulous investment scams is important and should be on every firm’s agenda.


Investors have fallen victim to investment scams almost from the birth of modern investing. In fact, many of the rules and regulations we have today are the result of corrective actions taken by regulators in reaction to various fraudulent scams. New technologies have changed our lives in many ways, including creating opportunities for the unscrupulous to take advantage of the unwitting. The SEC, by introducing the website, is utilizing the very same technology to educate investors and hopefully, make them less susceptible to being taken in by investment scams.  Investment professionals who are looking for ways to protect and educate their clients should take full advantage of this tool.

For more information on the above, please contact us at (619) 278-0020. Thank you.


Author:  Core Compliance & Legal Services, Inc. (“Core Compliance”); Editor: Tina Mitchell, Managing Director, Consultation Services; Core Compliance. Core Compliance works extensively with investment advisers, broker-dealers, investment companies, hedge funds, private equity Firms and banks on regulatory compliance issues. This article is for information purposes and does not contain or convey legal or tax advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer and/or tax pro


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