Exploring the Benefits of FINRA’s Securities Helpline for Seniors

By Josh Gutter

In late September 2016, the SEC charged a CEO and boiler room operator “with defrauding seniors and others who were pressured to invest in a pair of penny stock companies and promised lucrative profits.”  This crime is just one example of how senior citizens can become the victims of financial fraud.  In an effort to help seniors better understand their investments and brokerage accounts, the Financial Industry Regulatory Authority (FINRA) launched its Securities Helpline for Seniors in April 2015.  In addition to asking questions or raising concerns, seniors can also learn about helpful investor tools such as BrokerCheck.

Historically, FINRA has issued regulatory notices and other literature regarding senior investors.  For example, in 2007, FINRA released guidance reminding firms of their obligations to senior investors and highlighting the best practices to serve them.  But at the end of last year, FINRA published a report detailing the progress of its Helpline and its increasing need to serve the aging population.  The report noted that, “In 2010, the U.S. population over age 65 was approximately 40 million; by 2030 it is projected to grow by 80 percent to 72 million people.  This presents significant investor protection challenges. The effects of aging can diminish an individual’s ability to navigate the complexities of financial services, making seniors a prime target for financial exploitation, fraud and deception.”   Because of this, firms must also be more mindful about how they transact with senior investors.  FINRA and the SEC published a joint report through their National Senior Investor Initiative, and this publication provides useful information on “how firms conduct business with senior investors as they prepare for and enter into retirement.”  Topics include use of senior designations, marketing and communications, account documentation, suitability, disclosures, customer complaints, and supervision.

But with respect to Helpline activity, the average age of callers has been 70 years old, and at the time of FINRA’s December 2015 report, the Helpline had received more than 2,500 calls.  By the Helpline’s one-year anniversary, that number reached 4,200 calls.  Furthermore, the Helpline has also recovered over $1.3 million in voluntary reimbursements from firms since its launch.  Another benefit of having this Helpline is that it has brought attention to other types of financial exploitation of seniors, prompting a regulatory notice last year that proposed more rules for firms to protect senior investors.  In particular, “among these issues is a firm’s ability to quickly and effectively address suspected financial exploitation of seniors and other vulnerable adults” when there is a reasonable belief that such activity is occurring.

Thus, although senior investors can be a vulnerable target, with resources like the Securities Helpline for Seniors, they can take proactive steps to ask their questions and safeguard their accounts, while helping shape future rules to prevent the financial exploitation of their significant and growing demographic.



Not All That Glitters is Gold

By Anna Pierlussi

Every time the price of gold bullions hits a record high, the interest in investing in gold skyrockets. TV campaigns, radio advertisements, blogs, and many other social media channels will often aggressively promote investing in gold. The problem is that most of the stocks and opportunities promoted do not involve a direct investment in gold. In fact, many of the stocks being promoted are owned by gold mining and exploration companies with little value, while others are outright frauds.

Because gold has historically maintained or increased its value, buying gold seems to be a smart way to help hedge against inflation and economic fluctuation. However, while gold can certainly be used to diversify one’s portfolio, it is critical for investors to understand that the gold market fluctuates even more than the basic stock market which can mean increased risks. Also, the gold market moves in reverse of stocks and bonds: if stocks are down, gold will be a tempting investment.

Gold can be purchased in a variety of forms such as: purchasing actual gold i.e. bullion and bullion coins (a bulk quantity of the precious metal, assessed by weight and typically cast as ingots or bars); collectible coins (with some historic or aesthetic value to coin collectors and a market value that usually exceeds their face value or their worth in metal); gold-related investments such as mutual funds and exchange-traded funds; futures; and gold mining companies.

In regards to mutual funds, investors should keep in mind that even if mutual funds have gold in their names, none of them will actually have more than 10 percent of assets invested in the metal itself. By law, mutual funds must earn 90 percent of their income from securities. An investor seeking to invest in gold through mutual funds or an exchange-traded fund, should find out exactly how the fund invests in gold, what the hidden costs are, and what the applicable taxes are, which combined could dilute the holder’s interest in gold.

Furthermore, the biggest scams have involved gold mining companies. Such gold scams center on inflated claims regarding the stocks of gold mining companies whose stock value is usually based on gold reserves that are difficult to estimate, much less verify. Investors should be aware of “shell” mining companies, in which a company represents that it is in the gold mining industry when actually it exists solely to raise investor funds for fraudulent purposes.

The Financial Industry Regulatory Authority (FINRA) has recently identified the following warning signs related to purchasing gold stocks:

  • price targets or predictions of swift and exponential growth;
  • references to being a “buyout target” for other mining companies;
  • claims that tie stock performance to the general rise in gold prices;
  • scare tactics such as the threat of inflation or an economic meltdown;
  • a change in the company’s name or trading symbol to align it more closely with gold; and
  • speculative claims based on a new reserve’s proximity to an existing reserve.

By all means, this alert does not imply that investors should never buy or invest in gold. Whether you are buying gold stocks and funds, bullion and bullion coins, or collectible coins, keep in mind the warnings above, and do your homework. A savvy investor would not put all the “golden eggs” in one basket especially given the fluctuation of the market of this precious metal. Consult with a reputable dealer or financial advisor with specialized knowledge and obtain independent appraisal of the specific gold product you’re considering. Do not forget hidden costs and applicable taxes that may off-set any potential earning. Last but not least, beware of “exploration” companies asking for action now, and offering official-looking geological surveys or financial statements, when in reality there is little or no current production, just an appetite for new money.


H.R. 2357 – the Accelerating Access to Capital Act of 2015

By O. Jean Strickland

As the Wall Street Journal reports, on September 8, 2016, the House of Representatives (“House”) passed H.R. 2357 – Title I—Accelerating Access to Capital.  Should this bill become law, it will direct the Securities and Exchange Commission (“SEC”) to revise Form S–3, which provides a streamlined process for access to capital markets, to give access to this streamlined process to much smaller companies.  Specifically, the bill directs the SEC to “1) [allow] microcap companies traded on an exchange to issue an unlimited number of shares using shelf registration in a 12-month period; and 2) [permit] unlisted microcap companies, including those listed on the ‘pink sheets,’ with less than $75 million in common equity to sell up to 1/3 of the market value of its common equity using shelf registration in a 12-month period.”

Effective January 28, 2008, the SEC adopted revisions to the eligibility requirements for these “short form” filings commenting that it was “not prepared . . . to abandon [its] longstanding prerequisite . . . [to] allow unlimited use of this form for primary offerings by companies who do not have at least $75 million in public float [shares traded by the general public].”  The SEC expressed the rationale that “a company’s disclosure in its registration statement can be streamlined to the extent that the market has already taken that information into account.” Recognizing public float as an approximate measure of whether the market has taken information into account, the SEC stated that “companies with a smaller market capitalization as a group have a comparatively smaller market following than larger, well-seasoned issuers and are more thinly traded.”

The SEC and the minority views on H.R. 2357 both express concern for balancing market access with protection of investors.  Each notes that smaller public companies are more prone to fraud and financial reporting errors.  Therefore, reducing notice requirements to the SEC and facilitating speedier access to capital markets for such smaller companies does not appear to be maintaining the proper balance with respect to investor protection.

Hopefully, the Senate will exercise better judgment and vote down this bill.