SEC Announces New Initiative To Warn Investors About Questionable Securities Solicitations

LawFuel – Securities Newswire

Commission Seeking Public Comment on Web-Based Program Aimed At Unregistered Soliciting Entities

Washington, D.C., Sept. 26, 2007 – The Securities and Exchange Commission today announced a new Internet-based initiative to alert investors worldwide about problems with certain unregistered entities engaged in solicitations of securities transactions. By more immediately sharing information received in complaints about particular unregistered soliciting entities, the SEC is aiming to give retail investors, before they invest, a new tool to help them avoid questionable investment solicitations, including solicitations from online boiler room and advance fee scheme operations.

Through its “Public Alert: Unregistered Soliciting Entities” (PAUSE) program, the Commission will publish on its Web site certain factual information about unregistered soliciting entities that have been the subject of complaints forwarded by investors and others around the globe, including foreign securities regulators. The Commission is seeking public comments on the PAUSE program before it begins.

“Ferreting out operators of boiler rooms and secondary advance fee schemes that prey on innocent investors is a priority of this Commission,” said SEC Chairman Christopher Cox. “The PAUSE program is designed to proactively attack this problem, using the Internet to fight back by arming investors with information in real time to help them ask tough questions before giving their hard-earned money to strangers. This encourages all investors to PAUSE and determine whether an entity is properly registered with the SEC or located in the United States as claimed. We look forward to hearing the public’s views about this important initiative.”

To implement the PAUSE initiative, the Commission will post on its public Web site specific information about unregistered soliciting entities that have been the subject of complaints. For each of these entities, the Commission’s staff will have determined either (1) that there is no U.S. registered securities firm with that name, or (2) that there is a U.S. registered securities firm with the same or similar name, but that solicitations appear to have been made by people not affiliated with the U.S. registered securities firm. A second PAUSE list will name fictitious government agencies and international organizations referred to by entities that are subjects of complaints.

Generally, entities that solicit purchases or sales of securities for the accounts of other people in the United States are required to register with the SEC. It is important for prospective investors to consider whether a soliciting entity is, in fact, registered with the SEC. A large number of investor complaints received by the Commission concern solicitations of investors by unregistered entities that appear to be involved in boiler room and secondary advance fee schemes, which, in most instances, claim a nexus to the United States, but, in truth, are located outside of the United States and target non-U.S. investors.

Perpetrators of boiler room and advance fee schemes increasingly use new devices to persuade investors that their solicitations are legitimate, including:

Impersonating U.S. registered securities firms by, for example, using the same or a similar name or providing an address that closely resembles that of a U.S. registered securities firm.
Making false references or false claims of endorsement by government agencies and international organizations (sometimes even impersonating them).
Claiming endorsements or making other references to government agencies and international organizations that sound official, but do not exist.

Kurt Pribil, Chairman of CESR-Pol, a permanent operational group within the Committee of European Securities Regulators (CESR) responsible for the enforcement of Europe’s Market Abuse Directive, said, “I believe that the project PAUSE will be an effective tool to warn potential investors in the United States and worldwide of offers of financial services by entities that are not authorized in the United States to offer specific services. This pragmatic approach is key to minimizing the risk of investors being defrauded and has been an approach also adopted by the regulators in the European Union. Through CESR, EU regulators alert their colleagues of any unauthorized entities working in the EU, and by so doing, enable fellow authorities to inform their national investors by publishing these warning notices on their respective websites. We have long seen this as an important tool to reduce the risk of cross-border frauds. To that end, CESR regards PAUSE as a very useful initiative which can contribute to the safety of EU investors seeking to invest in the United States.”

The comment period extends for 30 days after the Release is published in the Federal Register.

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