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

 More about Utah Division of Securities 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)

Utah Division of Securities 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.

Utah Division of Securities Scintillating State Securities Statistics

Utah Division of Securities Scintillating State Securities Statistics

Utah Division of Securities Scintillating State Securities Statistics

Utah Division of Securities Scintillating State Securities Statistics

Utah Division of Securities Scintillating State Securities Statistics

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

Utah Division of Securities 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.

Utah Division of Securities Securities Fraud Reporting Program Act (Utah Code Ann. § Et. Seq.) Applies to conduct on or after May 10, 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.

Utah Division of Securities Problem Products and Practices The Six Most Common Types of Violations 50 StatesUtah 1. Fraud 2. Unlicensed Individual or Firm 3. Unregistered Securities3. Fail to Supervise 4. Dishonest/Unethical4. Unregistered Securities 5. Fail to Supervise5. Books and Records 6. Suitability

Utah Division of Securities Problem Products and Practices The Six Most Common Violative Products or Practices 50 StatesUtah 1. Reg D / Rule Ponzi Schemes2. Real Estate 3. Real Estate3. Ponzi Schemes 4. Oil and Gas4. Affinity Frauds 5. Structured Products5. Third Party Custodians 6. Hedge/Private Equity Funds6. Precious Metals

Utah Division of Securities Problem Products and Practices Issues 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

 Public Service Ads & Billboards Red Flags Commercial Con Man Commercial

 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 Schemes 2.Start Up Companies 3.Precious Metals Schemes 4.Crowd-Funding 5.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. 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. 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

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 Questions? Keith Woodwell Utah Division of Securities