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In Metropolitan New York, Long Island, and the Mid-Hudson Region
Investing
Investing money in stocks has grown in popularity among millions of Americans as a way to increase their financial security and prosperity. Although investing may bring positive benefits, one must realize that there will always be risks involved. Therefore, it is necessary for consumers to educate themselves before investing their money. After deciding to invest, you must find someone you can trust with your money. Unfortunately, not only is investing risky, choosing the right person to invest with can be just as risky.

Selecting a Broker or a Brokerage Firm
Many consumer invest using the services of a broker. Brokers may also be referred to as dealers, sales representatives, stockbrokers, account executives, or registered representatives. It is in your best interest to talk to potential salespeople at several firms, and if possible meet with them face to face. Find out about the disciplinary history of the brokerage firm and sales representative by calling 1-800-289-9999, a toll free hotline operated by National Association of Securities Dealers. The NASD will provide information on the disciplinary history of a broker or a brokerage firm. Potential investors should also make sure that brokers and brokerage firms are licensed to operate by securities regulators in their state.

Understand how the sales representatives are paid. Ask for a copy of the firm's commissions schedule. Firms usually pay based on the amount of money invested and the number and the amount of the transactions in the customer's account. Ask what fees and charges you will be required to pay when opening, maintaining and closing an account.

Determine whether you need the service of a full service brokerage or a discounted brokerage. A full service firm provides buying and selling services, recommendations, research support and investment advice. A discounted firm provides buying and selling services but does not personally make recommendations regarding which securities to buy and sell.

Ask if the firm is a member of the Securities Investment Protection Commission (SIPC), which provides some limited customer protection if a brokerage firm becomes bankrupt. You may also want to find out if the firm provides additional insurance. The SIPC does not insure against losses attributed to market losses in your securities

Telemarketing and the Internet
In recent years telemarketing and the Internet have expanded as methods of selling securities and investments. However, consumers should be especially alert about purchasing and trading through these venues, since less information may be provided and true identities can be easily concealed. When contacted by a broker, do not send money based solely on the sales pitch. Ask for information on the broker, the brokerage firm and the securities being sold to be sent to you. In addition, keep in mind the following rules of thumb:

  1. Act like a watchdog. Keep an eye (and ear) out for anything that may seem suspicious.
  2. Question all advice. Do not be afraid to challenge the validity of the information you receive.
  3. Think before you act. Take the time to research the investment possibility, and decide if it is right for you.
  4. Do outside research by consulting other resources.
  5. Use good judgement. If something sounds to good to be true, then chances are it probably is.


Making an Investment
Brokerage firms generally require customers to sign a new customer agreement. This agreement should be read over carefully before signing because it contains information on your legal rights regarding your account. Request to look over any account documentation prepared for you by the broker. Remember to only sign the agreement if you thoroughly understand and agree to its terms. Make sure verbal agreements are put down on paper. The broker will ask for information about your investment objectives and personal financial situation, which may include your income, net worth and investment history. Be accurate! The broker will rely on this information to make investment recommendations to you. When completing a new account agreement you will need to make three important decisions:

1. Who will control decision-making in the account?

You will control the decision-making in your account unless you decide to hand over “discretionary authority” to your broker. Doing this will give your salesperson the authority to make investment decisions in your account without consulting you about the price, amount, the type of security, or whether to buy or sell the investment.

2. How will you pay for your investment?

Most investors maintain a “cash account.” This type of account requires payment in full for each security purchased. An alternative is what is known as a margin account. Buying with a margin account means that you borrow money from the brokerage firm to buy securities and then pay interest on that loan. You will be required to sign a margin agreement disclosing interest terms. If you buy any securities under a margin agreement, the firm has authority to sell any security in your account without your notice to cover any shortfall resulting from a decline in the value of your securities. If the value of your account is less than the outstanding loan, you are liable for the balance.

3. How much risk should you assume?

There is some risk in every investment. When opening an account, the firm may request that you sign a contract agreeing to arbitrate any possible future disputes which may arise between the firm and yourself. Be aware that the federal securities laws do not require you to sign the contract, but a company can choose not to accept you as a client if you do not. If you decide to sign the contract, you give up the right to sue your sales representative and/or firm in court.

You may have to register your securities either in your name or in the name of your firm. Ask your sales representative about the advantages and disadvantages of each arrangement. If you plan on trading regularly you may prefer to register the securities in the name of the brokerage firm to facilitate clearance, settlement, and dividend payment.

Fraudulent Investments 
According to the Federal Trade Commission, every year Americans lose more than a billion dollars on investments which turn out to be fraudulent. There are many companies which engage in fraudulent activities for a short time, attract a large number of investors and close down before they can be detected, only to reopen in a new location under another name selling another investment scam.

Fraudulent sales representatives may mislead you by using phony sales pitches. Potential investors can avoid losing money by listening for clues of a phony sales pitch. Do not allow yourself to be swayed by high-pressure sales tactics. Be wary of sales representatives who claim that you must invest immediately or lose out on a once in a lifetime offer. These sales representatives could want your money.

Watch out for the following, they may indicate illegal activity:

  • A “ground floor opportunity” (once in a lifetime)
  • Claims that no risk is involved
  • Guarantees of big profits
  • Lots of pressure to act now because the “market is moving”
  • Recommendations from brokers based on “inside” or “confidential” information.
  • An excessive number of transactions in your account or errors in record keeping.
  • Unauthorized trades or adjustments to your account.
  • Excessive pressure to change trading strategies.


Pre–Investment Questions 

Determine if the Investment Opportunity is a Fraud
Before investing ask the following questions of yourself and your investment solicitor. Beware of offers where the answers to any of the following questions are vague, complicated or a definite “no.”

1. Is the company I'm investing in registered to sell securities?

Be wary of a company that has not registered its securities. Companies that do register their securities must file annual reports with securities regulators.

To get a broker's Central Registration Depository Record (CRD), call the National Association of Securities Dealers (NASD) at 1-800-289-9999, or go on-line . When you request a CRD have as much information as possible about your broker such as: full name, firm and address. CRDs are free from the NASD.

2. Is it “too late” if I don't invest my money now?

Be suspicious of sellers that give the impression that only a few shares of stocks or partnership units are left. Many try to convince you to wire or send money overnight, but remember that once you give money, it may be gone forever.

3. Does the investment have a track record?

Many scam artists link their investment opportunity to similar “hot” entrepreneurs, often using news stories about the success of legitimate companies as bait. These stories can be completely irrelevant to your investment purpose. Get the track record of the company you are considering investing in and the people promoting the investment from the Better Business Bureau or the securities regulators in your state.

4. Where is my money going?

Legitimate companies account for investors' money at all times. Request written proof from the company about the amount of money going to the actual purchase of the investment opportunity and how much is going to commissions, marking costs, and promoters profits. The more expenses, the fewer earnings for you.

5. Do I have an independent, knowledgeable, trustworthy person who can advise me?

Get an independent appraisal of the investment. Keep in mind that the company's appraisal may be false. Try to speak to previous owners or investors of the company. Discuss all investment plans or ideas with an accountant or advisor you trust.

6. Do I know who I'm dealing with?

Try to find published information of the company in which you'd like to invest including the registration of securities. Check with your  state's securities agency to see if the promoters are licensed to sell securities in your state. Check with the law enforcement agencies and the Better Business Bureau in the area in which these promoters are located.

7. Can I be certain the promoter is not lying to me?

Scam artists lie. Their success depends on having an airtight answer for everything. They alter the costs and value of numerous worthless investments. Many promise you profit in the “long run,” so that in the “short run” you won't notice that your investment is a total bust.

8. Do I know when something is too good to be true?

Investing is always risky. However, you can make it a little less risky if you demand written proof of profit projections and do not rely solely on verbal projections.

If You Have a Problem or Need More Information
If you should run into a problem with your salesperson or account, promptly speak to their manager or the firm's compliance officer. Confirm your complaint in writing, keep written records of all conversations, and ask for written explanations.

There are numerous agencies that register, regulate, investigate, or monitor companies and individuals offering investment opportunities. If you should have any questions or wish to make a complaint, contact one the following appropriate agencies.

  • For a Reliability Report or to file a complaint against a brokerage firm, visit the Better Business Bureau web site. The BBB Serving Metropolitan New York can be reached in other ways. For immediate assistance, call 212-533-6200. The charge is $3.80 plus applicable tax, charged to a major credit card. Consumers can also call 1-900-225-5222. The charge is $3.80 for the first four minutes, and 95 cents per minute thereafter. The average call costs $3.80; the maximum charge is $9.50. For free information or to file a complaint, consumers may also write to 257 Park Avenue South, New York, NY 10010-7384.

  • The National Association of Securities Dealers is a regulatory organization that governs stock brokers. Reports on brokers and brokerage firms can be obtained by calling 1-800-289-9999.

    National Association of Securities Dealers
    33 Whitehall Street 
    New York, NY 10004 
    www.nasdr.com

  • The Federal Trade Commission is a law enforcement agency that investigates and prosecutes a variety of investment frauds.

    Federal Trade Commission 
    Investment Fraud Project 
    Room 200, Bureau of Consumer Protection 
    Washington, D.C. 20580

  • The New York State Attorney General's Office investigates and prosecutes cases of fraud.

    For information about a particular broker or brokerage firm contact:

    New York State Attorney General's Office 
    Bureau of Investor Protection 
    120 Broadway 
    New York, NY 10271 
    (212) 416-8200

    For complaints contact:
    New York State's Attorney General Office 
    Bureau of Consumer Frauds and Protection 
    120 Broadway 
    New York, NY 10271 
    (212) 416-8345

  • The Commodity Futures Trading Commission regulates most firms that deal in commodity futures markets. Futures trading markets include petroleum products, U.S. government securities, foreign currencies, options on futures contracts, and dealer options.

    Commodity Futures Trading Commission 
    2033 K Street, N.W. 
    Washington, D.C. 20581

  • The Securities and Exchange Commission is a federal agency that regulates the public offer and sales of securities. Contact SEC toll-free at 1-800-SEC-0330 or

    U.S. Securities and Exchange Commission 
    7 World Trade Center 
    New York, NY 10048 
    See Division of Enforcement Complaint