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Investing Seminar by SEC Commissioner Atkins, Part II

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Last week, I attended a financial seminar put on by the Commissioner of the SEC, Mr. Paul Atkins. This is a recap of the seminar, and is based on the notes I took.

In Part I, I covered the sections ‘What is the SEC,’ ‘Why Invest?’ ‘Where to Begin,’ ‘Investment Choices,’ and ‘What Investments are Right for Me?’

In Part II of the series I cover the sections ‘What to Watch For,’ What to do Before Investing,’ ‘What to do After Investing,’ and ‘Types of Scams.’

What to Watch For

  • Brokers are salespeople (this does not mean though that they are bad)
  • Beware of the benevolent stranger (unsolicited advice)
  • If it sounds too good, it is!
  • Be skeptical of
    • Advice from the media
    • Penny stocks (shares priced less than $5 each)
    • Insider tips (they are illegal!)
    • Promises of spectacular profits or guaranteed returns
    • Testimonials (such as on TV, in print or on the Internet)
    • Unsolicited Phone calls
    • Forecasted Future Earnings
  • General tips for financial security:
    • Don’t give personal info to a person/company you do not know
    • Avoid unregistered securities
    • Avoid Phishing scams
    • Keep all your transaction documents
  • Red Flags:
    • Membership fees to invest (this does not include minimums to open accounts)
    • Suspiciously high price or fees
    • Too good to be true
    • Bonuses to recruit others
    • Request to send money to the individual broker/agent, not the company
    • Bait and switch (an offer to invest in one opportunity, then changing the opportunity/offer at the last minute. e.g. ‘oh we just ran out of this, but I have something just as good or better!’ If it were better, wouldn’t they offer you that opportunity first?)

Before Investing

  • Get everything in writing and READ it!
  • Understand the investment. Warren Buffett always maintains that he does not invest in technology stocks because he only invests in things he understands. If this principle is good enough for the world’s greatest investor, it should be good enough for anyone!
  • No question is too simple. (It’s your money!)
  • Don’t make emotional investment decisions
  • Don’t be pressured into buying
  • Read all forms before signing them!
  • Never sign incomplete forms!

After Investing

  • Watch for unauthorized trading and churning within you investments/accounts
  • Be aware of unsuitable investments
  • Watch for delayed account transfers
  • Do not accept account statements directly from your broker (they should come directly from the institution; if your broker insists only he has this information, it is a possible red flag that the information is false)
  • Report problems directly to the SEC

Types of Scams

  • Ponzi Schemes
  • Pyramid Schemes
  • Affinity Fraud
  • Telephone/Internet solicitations
    • Here they showed clip from Boiler Room when Giovanni Ribisi’s character cold calls a guy at work and talks him into buying stocks.
    • Another telephone scam: voice message left for the wrong person, and they leave ‘insider trading’ information. This is fraud aimed at pumping a stock price and then dumping it. The fraud is pulled off by using internet phone services where they can change the area code to represent any local area they want (to offset people’s reliance on caller ID).
    • Commissioner Atkins himself said he has been cold called about investments at his desk while working as the commissioner of the SEC!
  • Bottome line – Never buy from someone you do not know and never buy anything without seeing the investment plan in writing first.

Remember, there are risks associated with all types of investing, from losing your money through loss of value in the stock market to not keeping up with inflation. It is your job to determine the associated risks and determine the amount of risk you should take.

*Disclaimer: This post is based upon handwritten notes and my memory from the seminar. This should not be interpreted to represent the official stance of the SEC. Please see their website for their official views.


Published or updated December 9, 2010.
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