Until Money Grows on Trees, Verify Before You Buy!
sECurItIEs EduCatIon ProGraM
Arizona Corporation Commission
1300 W. Washington, Third Floor / Phoenix, AZ 85007
Tel: 602-542-4242 / Toll-free: 1-866-VERIFY-9 / Fax: 602-594-7470
About Us—The Arizona Corporation Commission & The Securities Division ................. 4
How to Verify Before You Buy Securities .......................................................................... 8
Risk and Suitability ........................................................................................................... 14
Affinity Fraud ................................................................................................................... 17
Boiler Rooms: Where Fraud is Always on Call ............................................................... 20
Guide to Mining Investments............................................................................................ 24
Online Investment Schemes.............................................................................................. 29
Promissory Notes .............................................................................................................. 35
Real Estate Investments as Securities ............................................................................... 38
Variable Annuities ............................................................................................................. 41
table of co nten ts
Viatical or Life Settlements as Investments ...................................................................... 44
Small Business Investments.............................................................................................. 48
Preventing & Resolving Problems with Financial Professionals ..................................... 53
Arbitration and You........................................................................................................... 59
SIPC: Securities Investor Protection Corporation ........................................................... 61
Investor Complaints .......................................................................................................... 63
Oil and Gas Investments ................................................................................................... 66
Important Telephone Numbers.......................................................................................... 69
What Is thE arIzona
Arizona Corporation Commission is
a state regulatory body charged with
several important responsibilities. The
• Governs the offer and sale of
securities and investment advice in
or from the state,
• Licenses investment advisers and
• Registers securities dealers and
• Regulates over 500 public utilities
serving the state, including setting
the rates and charges for service
and ensuring adequate, reliable
ab out us
• Registers corporations and limited
liability companies doing business
in or from Arizona,
• Enforces state regulations to ensure
railroad and pipeline safety.
Who ForMEd thE CoMMIssIon consecutive terms. In case of a vacancy, the
and WhEn? Governor appoints a replacement of the same
The authors of the Arizona Constitution political party as the outgoing Commissioner.
created the Commission in 1912 as an
agency independent of the legislature, the The ultimate responsibility for final decisions
executive branch, and the judiciary. The on granting or denying rate adjustments,
Commission is an unusual public entity enforcing safety and public service
in that only a handful of other states in requirements, and enforcing securities laws
the U.S. have constitutionally formed rests with the Commissioners, who are the
commissions. Then, as now, the goal was state’s regulators.
to have an agency that could balance the
enormous economic power wielded by The Commissioners oversee a staff
large corporations—such as the railroads that is organized into seven divisions:
of that era—and ordinary citizens. Administration, Hearing, Information
Technology, Legal, Railroad and Pipeline
Who ChoosEs thE Safety, Securities, and Utilities.
You do! As a registered Arizona voter, you To find more detail on each division’s
choose the Commissioners when voting authority and responsibilities, and to view
in a statewide election. The Commission the biographies of the commissioners
is governed by five commissioners. Each serving you today, visit www.azinvestor.gov
Commissioner serves a four-year term and click on the Commission’s seal at the
with the ability to serve a maximum of two top-right portion of your computer screen.
a bo ut u s
your First line of defense against Investment Fraud
our MIssIon of the Arizona Securities Act and the
The mission of the Securities Division is to Investment Management Act, monitoring
ensure the integrity of securities marketplace pertinent legislation, engaging in
through investigative actions as well as rulemaking, and providing legal support
the registration and oversight of securities, and training to Division staff.
securities dealers and salespeople, and
investment advisers and their representatives; EnForCEMEnt
to enhance legitimate capital formation; This section’s primary duty is to
and to minimize the burden and expense of investigate and take enforcement action
regulatory compliance on legitimate business. against violators of the state securities
laws. The enforcement staff reviews
The Securities Division is one of seven complaints gathered from a variety of
divisions of the Arizona Corporation sources, investigates data to determine a
Commission. The Division is divided into course of action, and if warranted, seeks
the following sections, each with separate administrative or civil remedies, or refers
but overlapping responsibilities: the case for criminal prosecution.
rEGIstratIon and CoMPlIanCE adMInIstratIon
This section’s function is to register securities, This section’s functions include setting
dealers, salesmen, investment advisers, and policy for the Division, providing
investment adviser representatives, and operational support to the entire staff and
continually monitor their actions through promoting wise investing and preventing
investigative review, initiating enforcement fraud through its investor education
actions when the law is violated. programs.
The Registration and Compliance section
ab out us
reviews prospective securities offerings for
fairness and a full disclosure of risk factors
This section’s function includes responding
to public inquiries regarding the substance
Depending on your situation, you may
wish to contact different people within
PublIC InForMatIon oFFICEr
the Securities Division. Here are those DUTIES: Interacts with the public and
employees who can assist you: the news media to explain the Securities
Division’s role on specific enforcement
duty oFFICEr actions and responds to questions
TEL: 602-542-0662 regarding the Division’s cases.
DUTIES: Answers questions about
specific investment products and dIvIsIon sPEaKErs burEau
provides background information on To promote awareness, the Division
securities salespeople, dealers, and conducts statewide investor
investment advisers. Responds to public informational programs and offers free
inquires about the substance of the materials to educate and protect investors
state’s securities laws found within the against fraud and dishonest or illegal
Arizona Securities Act and Investment practices in the securities industry.
Management Act. The Duty Officer
does not, however, provide legal advice Besides the Investor Education
or legal counseling to the public. Coordinator, Division staff are
available, without charge, to speak
InvEstor EduCatIon with your group on a variety of topics,
CoordInator including the scope and function of
TEL: 602-542-0428 the Commission and the role of the
DUTIES: Helps spread the word about Securities Division, as well as:
avoiding investment scams and promotes
wise investing through speaking • Top Threats to Arizona Investors
engagements, brochures, and investing • How to Outsmart the Investment
information on the investor education Swindlers: Verify Before You Buy
a bo ut u s
web site, www.azinvestor.gov. • How to Select and Monitor a
• Basics of Saving and Investing
To schedule a presentation, contact
the Investor Education Coordinator at
Before You Buy Securities
ho w to ver ify b efore you buy
GEt It In WrItInG
Whatever an adviser or a securities
salesperson tells you about himself or
herself, about the investment he or she
is offering to you, or about the company
or people with whom you would be
investing, get what you are told in writing.
Anyone offering you an investment
opportunity should give you an offering
memorandum—a complete description of
the investment and the people and risks
involved with the investment. READ
THE OFFERING MEMORANDUM!
If you do not understand it, get help
from an accountant, lawyer, or another
independent third party who understands
how to read an offering memorandum.
asK QuEstIons about your
advIsEr or salEsPErson
Talk to your adviser or salesperson
and insist that he or she answers your
questions to your satisfaction. Write down If you are dealing with a securities
the answers you are given, the name of salesperson, check out the individual and
who gives you the answers, and the date. the dealer for which the salesperson works
Be sure to ask: on the Web CRD (central registration
depository) at www.finra.org to see if the
ü What commission or fee will you salesperson and dealer are registered in
earn if I buy the investment? Arizona, for how long, and whether they
ü Who or what entity will be paying have any disciplinary history.
ü you be receiving any benefit If you do not have access to the Web
other than your commission or fee if CRD, contact the Securities Division at
I buy the investment? 602-542-4242 or toll free (within Arizona)
ü you related to or involved with
Are at 1-866-VERIFY-9.
the investment in any way other than
recommending that I buy it? asK QuEstIons about thE
ü you registered or licensed InvEstMEnt
and, if so, with whom? If you are Ask your salesperson, your adviser, and
not registered or licensed with a the officers or directors of the company
regulatory agency, why not? in which you may make an investment
how to verify b efore you b uy
ü Have you ever been sued, all of the questions you have about the
disciplined, or had any complaints investment until you understand it and
filed relating to your work as a are comfortable. Write down the answers
salesperson or adviser? you are given, the name of the person who
gives you the answers, and the date.
rEsEarCh thE baCKGround
oF your FInanCIal Pose this series of questions:
ProFEssIonal • Is the investment registered with
If you are dealing with an investment the Securities and Exchange
adviser, check the IAPD (Investment Commission or the Arizona
Adviser Public Disclosure) web site, Securities Division? If not, why
www.adviserinfo.sec.gov to see if not?
the investment adviser is licensed in • If the investment is exempt from
Arizona, how long the adviser has been registration, what is the nature of the
licensed, and whether the adviser has any exemption?
disciplinary history. • Is a notice regarding this exempt
offering on file with the SEC or the
If you do not have access to the IAPD, Securities Division? If not, why
contact the Securities Division at 602- not?
542-4242 or toll free at 1-866-VERIFY-9
(within Arizona). Understand the fundamental nature
of the investment. Understand the
Also, check out the investment adviser tax implications of the nature of the
representative (the individual dealing with investment. Understand your rights as a
you, who works for the investment adviser) creditor or an owner if the entity in which
by contacting the Securities Division. you are investing goes bankrupt.
NOTE: The fact that a particular investment is properly registered, or exempt from registration,
is not a guarantee as to how that investment will perform, or that it is an appropriate investment
for you. If you need assistance understanding an investment and when it is suitable to invest in
that type of investment, seek assistance from an accountant, attorney, or independent adviser.
Is it a debt offering? If you invest in a debt offering (notes, bonds, debentures), you will
become a creditor.
If the offered security is a debt obligation, who will repay your investment to you?
Will you get interest; how much? Is your investment, the debt obligation, secured or
guaranteed? If so, by what or whom?
Is it an equity (stock) offering? If you obtain an equity interest in an entity, you
become an owner. Will you own shares of stock in a corporation? Will you own a
partnership interest or a limited liability company membership interest? Will you have
any control over how the entity is run? Will you receive dividends?
Is the investment “liquid”? Can you sell the investment if and when you want
to? Is there a market—are other buyers interested in the investment? Will you be
ho w to ver ify b efore you buy
able to get your entire investment back? Do you have to hold the investment for a
specific period of time? Will you have to pay penalties if you sell the investment
NOTE: Most securities offerings do not contain a “buy-back” feature and if you need to get
your money back, you will likely have to attempt to sell the investment on the “secondary market”
if one exists. If you have to sell your investment in a secondary market, you may have to sell for
a substantial discount from the original amount of your investment.
• What type of business are you • What factors may jeopardize your
investing in? Is it an established ability to recover your investment and
business with an operating history? make a return on that investment?
If so, what is that history? If not,
does the proposed business make NOTE: Once you thoroughly understand
sense? Is it likely to be successful? the types of business risks and market risks
involved with the investment, you need
• Who is responsible for operating the to assess your financial position and risk
business in which you are investing? tolerance. Can you afford or are you willing
Do those people have the necessary to take those risks?
skill, experience, and training to
operate the business?
• What risks are you taking by making
the investment? What factors may
jeopardize the success of the business
IndEPEndEntly rEsEarCh Contact relevant departments to see if
thE InvEstMEnt people are appropriately licensed and if
Check the public records of the superior court they have disciplinary histories.
to see if any of the people or entities involved
have been or are involved in a lawsuit. Department of Real Estate
Department of Insurance
Check the public records of the bankruptcy 602-364-3100
court to see if any of the people or entities
involved have filed bankruptcy. Securities Division
602-682-4000 (Phoenix) 602-542-0662
928-783-2288 (Yuma) Toll-free:
520-202-7500 (Tucson) 1-866-VERIFY-9 (837-4399)
Call the Better Business Bureau to see if See the section of this booklet titled,
the entities involved are members and if “Directory of Important Phone Numbers”
any complaints have been filed: (page 69) for a listing of telephone
how to verify b efore you b uy
numbers of regulatory entities.
602-264-1721 or 1-877-291-6222 Review materials that discuss that type of
investment. You can obtain many such
Check Corporation Starpas or contact materials from the following organizations.
the Corporations Division of the Arizona Review each organization’s web site for
Corporation Commission to see if the links to additional resources:
corporations involved have filed annual
reports listing financial, officer, and Securities and Exchange Commission
director information. 202-272-2800
Arizona corporations are required by
statute to file annual reports with the Financial Industry Regulatory Authority
Arizona Corporation Commission: 202-728-8000
1-800-345-5819 (outside Phoenix) North American Association of Securities
520-628-6560 (Tucson) Administrators
Call the Office of the Arizona Attorney www.nasaa.org
General to see if they have any information
about the people or entities involved: Alliance for Investor Education
Until Money Grows on Trees, “Verify Before You Buy!”
ho w to ver ify b efore you buy
Once you have accumulated the above information, contact the appropriate agency
to confirm that the person and company is licensed or registered in Arizona BEFORE
handing over your money (see Important Telephone Numbers).
Choosing an investment is complicated.
Should you invest in stocks, bonds, mutual
funds, CDs, commodities, options, futures
contracts, mortgage-backed securities, or
a myriad of other types of securities? And
once you have chosen a type of investment,
such as mutual funds, then you need to
decide in which areas of the economy—
ri sk and suita bil ity
such as technology or health care—you
want to invest. Before you make any
investment choices, however, you and your
financial professional need to consider two
factors that should influence all of your
choices: your risk tolerance and what
investments are suitable for you.
InvEstInG Is rIsKy busInEss
Risk can be simply defined as the
possibility of suffering a loss. One very
important principle to always remember
about risk is that the higher the return on
your investment, the greater the risk you
If the risk of loss is high, a higher interest securities diversification. Likewise, those
rate is used to entice investment. This who invest in only a few companies or
is why U.S. Treasury securities, often even a few areas of the economy are
referred to as T-bills, T-notes, and T- assuming significant risk and should
bonds, have a lower rate of return as consider diversifying.
opposed to bonds issued by financially
shaky companies that offer a higher rate You can minimize your investment risk
of return. through diversification, which may enable
you to invest in a mixture of low-risk/high-
Many people who invested solely in risk investments. The old saying, “Don’t
the “dot-com” emerging companies of put all your eggs in one basket,” holds true
the 1990s learned a hard lesson about with investing.
risk a nd sui tab ility
suItabIlIty dEFInEd When you open a securities account, your
Now that you have thought about risk, financial professional should ask you
what about suitability? Suitability means questions about your income, net worth,
that the investment is in line with your liquid assets, tax bracket, prior investment
investment objectives and financial experience, retirement goals, plans for
situation. Your financial professional major expenditures, and other similar
(securities salesperson/stockbroker or relevant facts.
investment adviser) should not recommend
an investment that exposes you to risk Your financial professional should also
beyond what you can afford to lose. So, discuss with you what your investment
is buying a bond in a financially shaky objectives are—for example, income,
company suitable for you? If you cannot aggressive income, capital appreciation, or
afford to risk the money you invest, then speculation.
absolutely not! If you are capable of and
willing to accept the risk of losing all or Your financial information and objectives
part of your investment, then buying a typically are recorded on forms required to
bond in a financial shaky company may be open a securities account. In many instances,
suitable for you. the stockbroker or investment adviser
completes these forms and has you sign
To determine if an investment is suitable, them. But never, ever sign a blank form.
you must also consider how soon you
need to have access to the money you You must make sure that the information
have invested. For example, let’s say that your financial professional has about you
you need the money to send your child to is accurate. Request a copy of any forms
college next year. Even if you can afford prepared by your financial professional to
to lose some or all of your investment, review for accuracy.
putting your money into a real estate
limited partnership would not be suitable Your financial professional should
ri sk and suita bil ity
since it is not a liquid investment (one that periodically review this information with
cannot be easily converted to cash). you to keep it up to date. This way, you and
your financial professional can make sure
your FInanCIal ovErvIEW he or she only recommends investments that
If you work with a financial professional, are suitable for your specific situation.
he or she is required to have enough
information about you to determine— vErIFy bEForE you buy!
before even recommending a security If you wish to verify the background of your
to you—whether a security matches financial professional or any of the types
your investment objectives and financial of investments this person recommends,
situation. The only way for financial contact the Arizona Corporation
professionals to determine if investments Commission’s Securities Division at 602-
are suitable for you is for them to ask you 542-4242 or 1-866-VERIFY-9, toll free
questions to find out how “risk tolerant” (within Arizona).
you are, what your investment objectives
are, and the status of your overall financial
In today’s investment climate, an ever-
increasing number of Americans are
putting their money in the financial
markets. While this is good for the
economy and often lucrative for
individuals, many pitfalls remain. Stories
of fabulous short-term gains may have
created an atmosphere of unrealistic
expectations. No one wants to miss the
golden opportunities of the stock market,
but determining where to invest is often
difficult. As a short cut, people may rely
on friends and persons like themselves for
investment advice. This is where affinity
fraud comes into play.
a ffini ty fr au d
“Affinity fraud” involves con artists who
target members of their own race, nationality
or religious affiliation and exploit their
status as members of the group to solicit
investments in fraudulent schemes.
In one way or another, everyone is who claim to provide “safe” alternatives to
connected to a group or association. banks or have “no-risk” investments can
Our ethnicity, interests, backgrounds take the funds of their victims and disappear,
and other factors will naturally lead to dashing hopes and dreams of starting a
such organizations or affiliations. Our new life in this country. The fact that these
heritage, religion and race can contribute immigrants are not familiar with the laws and
to this gravitation to groups that we ways of American society and are reluctant
often come to trust—sometimes to our to call authorities greatly increases the
detriment. Because the average person swindler’s success.
does not take the time or resources to
research investment opportunities, they are Similarly, members of long-established
vulnerable to affinity fraud. ethnic groups that have amassed savings
and achieved certain standards of living
Since the swindler is a fellow group often have a desire to “give back” to their
member, he appears a natural match communities. Affinity fraud artists of
for sharing information, resources the same ethnicity often try to appeal to
and entrusting funds. The hook is the such sentiments. Con artists also use this
affiliation to the group members who are tactic in the increasing number of religious
the potential investors. The scam artist affinity fraud cases. Swindlers who prey
plays up the association that he or she and upon their faithful counterpart come in all
the investor have in the hopes of lowering religious denominations.
the investor’s guard and exploiting a
natural trust. ProtECtInG yoursElF
Avoiding affinity fraud, as with any other
Why aFFInIty Fraud WorKs investment advice or product, involves
Affinity fraud is such a successful tool for taking certain precautionary steps. There
scam artists for several reasons. One of are several steps a careful investor can
the most noticeable is how conflict is dealt take to significantly decrease the chance of
with within a group. Once a victim realizes being a victim.
that he or she has been scammed, often the
response is not to notify the authorities, 1. Investors should be on guard when
but to try and solve the problem within the someone uses testimonials from
group. This intergroup loyalty is an aspect group members in connection with
affin ity fr a ud
that swindlers play upon, especially among soliciting investments.
people of color and ethnic minority groups.
A desire to find an amicable resolution 2. Be wary of promises of high returns
“among ourselves” allows the swindler to on your investment.
continue his scam undetected by regulators,
and if necessary, plan a discrete escape or 3. Early and high returns on the
cover his or her tracks. investment may be indicative of a
“Ponzi” scheme, which involves the
New immigrants may be particularly use of later investors’ money to pay
vulnerable. Since new immigrants may be earlier investors. These early investors
isolated from the larger community, their become unwitting, but enthusiastic,
access to information is restricted. Swindlers promoters of the scheme.
4. Always get an investment offering a hasty decision, it is likely that the
in writing. A legitimate promoter investment is scam. There are many
should always willingly provide legitimate investments available in
detailed written materials describing today’s market. You should not let
the uses of your funds, the risks yourself be rushed into investing in a
involved in the investment, financial fraudulent one.
statements, and any conflicts of
interest that the promoter may have. The Arizona Corporation Commission’s
Securities Division can help. Before you
5. Once obtaining written disclosures, actually put money into the investment,
it is always a good idea to seek call the Securities Division to learn
outside professional advice. An whether or not you are dealing with a
independent accountant, financial registered salesperson and firm. A simple
planner, or attorney can help you to inquiry into whether the person and firm
evaluate the investment. touting the investment are licensed in
Arizona can speak volumes. Don’t just
6. Do not rush into making an take the word of a salesperson—check
investment decision. If the the investment out for yourself and verify
promoter is requiring you to make before you buy!
a ffini ty fr au d
Are Always on Call
One of the most common types of
securities fraud perpetrated against
individual investors occurs far from
plush corporate boardrooms and away
from the big city trading centers. Rather,
this type of investment scheme originates
out of hundreds of largely invisible
telemarketing offices located throughout
the United States, Canada, and, more
recently, as far away as Europe and
Southeast Asia. These operations sell
special “investment opportunities” over
the telephone, offering remarkably high,
bo iler r oom s
yet practically risk-free, rates of return.
What these telemarketers invariably
fail to mention is that these investment
opportunities only provide these
tremendous risk-free returns to a limited
What Is a boIlEr rooM?
The nerve center in most of these
marketing schemes is the sales office,
otherwise known as the “boiler room.” for the boiler rooms often start by
The term “boiler room” originated identifying a recently successful
during an earlier era of telemarketing business operation or industry, and then
fraud, where managers of these mimic the blueprint of these business
operations would seek out cheap operations to construct their imaginary
office space, such as in the basement investment programs. As an example,
of buildings, where the conditions telecommunication investment scams
were typically hot, uncomfortable, and were epidemic in the early 1990s, and
crowded. Today, the term boiler room fraudulent ‘dot-com’ investments were
is commonly understood to describe the telemarketing scam of choice during
a commercial office setting involving the late 1990s.
a simple set-up of desks, computers,
telephone lines, and salespeople an oPPortunIty
employing a variety of high-pressure FroM “out oF thE bluE”
sales tactics to push their investment Once the fraudulent investment product
product to hundreds of potential is prepared and packaged, often as
investors across the country each day. a “private placement” to investors,
salespeople begin targeting potential
These offices can be established investors on their “lead lists.” Lead
anywhere, but are often found in remote lists are a listing of potential investors
urban areas such as commercial parks, who are most likely to be interested
industrial parks, or other discrete in the fraudulent offering based on
locations. Beyond the low overhead and past investment patterns, internet-
stealthy nature of these boiler rooms, derived investor databases, or some
the sparse set-up allows the operations other covert method of identifying
to dissolve and resurface almost at will. potential investors. With the lead lists
in hand, experienced salespeople then
boIlEr rooM ProduCts make “cold-calls,” otherwise known as
The types of boiler room investment unsolicited calls, up to more than 200
scams are limited only by the potential investors per day.
promoter’s imagination, and these
operations are continually reinventing thE salEs PItCh
and refining their bogus investment Boiler room salespeople may use
programs. Each operation ultimately any number of techniques to sell
relies on three basic elements to their fraudulent securities to unwary boi ler roo ms
make the telemarketers and their investors, their favorite quarry. A
telemarketing scams successful: 1) the popular method is the “three-call”
appearance of a legitimate investment technique, where an initial caller will
program, 2) investor leads, and 3) “warm up” the potential investor with
unwary investors. descriptions of the company’s past
successes and the exciting offerings
Producers may design what appears to coming ahead.
be an authentic investment opportunity
in many ways. The “producers” If the salesperson detects a level of
who design these bogus investments interest, brochure materials are sent to
the prospect and second “set-up” man rate of return. As said many times, “if
calls to tell the prospect of the amazing something sounds to good to be true, it
opportunity currently available. The probably is.” This mantra is the bane of
pressure is then turned up by the all telemarketing scams; their success
experienced “closer,” who calls the depends on the investor’s belief that
prospect to say that the prospect must an investment may exist that has little
invest in the program now, using sales or no risk but offers an extremely high
tactics and quick answers to any concerns rate of return. There is no such animal,
the unwary prospect might have. and even if one did exist, would a
telemarketer have to call a stranger to
Once the investment is made, usually sell it? The answer is a resounding “of
through wire transfer or other course not!”
immediate means of payment (after
all, the salesperson doesn’t want the Similarly, when the salesperson is
investor to have any time to reflect suggesting that he or she will buy back the
on a rash decision), the investor’s investment at a later date, the salesperson
name is often elevated to a highly is again implying that there is no risk
valued “sucker list,” which will often associated with the investment; alarms
be resold to other boiler rooms for should be sounding since this type of claim
additional securities offerings to be is not credible.
hatched in the future.
Still another red flag is the salesperson’s
Boiler room salespeople are glib and dire warning that the “window of
resourceful, and have a number of other opportunity” is closing on the investment
techniques to help you part with your opportunity, and the prospective investor
money. If the particular investment “must act now.”
is “guaranteed,” or if the salesperson
will buy back the investment “after a This routine ploy is usually nothing
certain time period,” a red flag should more than the salesperson’s attempt
immediately go up. to prevent the investor from making
sensible background checks, researching
Most, if not all, investments into the company further, checking
(perhaps other than certain low- with regulators, and/or reflecting on the
yield government bonds and bank rashness of the decision.
bo iler r oom s
certificate of deposits), have at least
some elements of risk. If a particular This now-or-never pitch can often be
investment was not highly risky, translated as it applies to the investor’s
the owners of the securities would money: lose it to the salesperson
not likely find it necessary to sell in the boiler room—now or never.
the investment through cold calls to The salesperson will use any tactic
unknown individuals! in his or her repertoire, including
formulated scripts and answers, levels
hIGh-PrEssurE salEs taCtICs of aggression, derision or flattery—
A similar alarm should sound when the anything it takes for the investor to
investment is offering an exorbitant swallow the bait and “act now.”
don’t bE a tarGEt— regulatory bodies charged with overseeing
ProtECt yoursElF this activity. These agencies can often
Individuals who become targets for one determine whether the securities being
of these boiler rooms can take various offered to you have been properly filed or
steps to insulate themselves from this type registered, as well as determining whether
of securities fraud. The most obvious the principals of the company have had
and effective strategy is to immediately any prior disciplinary problems within the
decline the opportunity to invest with the industry. Often a fraudulent telemarketer
boiler room caller, but this can, at times, may scold or threaten you for requesting
be more difficult than it sounds. These to do such a check, a classic indication that
telemarketers are experienced sellers something is amiss.
who have heard practically every excuse,
enabling them to develop what seems to be Finally, be aware and have a healthy level
a rational answer to almost any question, of cynicism about any investment offer
concern, or reservation. made over the phone. If an offering is very
low risk and offers a high return, if you
This being the case, if you begin to can’t lose, or if the investment is sure to
feel pressured to invest in a particular go public and double, triple, or quadruple,
investment “opportunity,” simply terminate recognize that if that truly was the case,
the call. Before hanging up the phone, ask the boiler room on the other end of the line
the caller to have your number placed on wouldn’t have called you in the first place.
the “do not call” list. Telemarketers will
typically move on to the next lead.
Other policies should also be considered
when dealing with a potentially fraudulent
investment telemarketer. First, never
be pressured into giving an immediate
decision on investing. If that is the only
alternative the salesperson is offering you,
then its time for you to go.
Next, make sure you receive everything
in writing before making any investment
decisions, particularly over the phone. You boi ler roo ms
may be surprised to find that the verbal
representations made by the salesmen are
at odds with the documentation offered by
the company. Alternatively, the written
disclosures about this company may, in fact,
be woefully inadequate and/or suspect.
With over-the-phone securities solicitations,
another important point to remember is to
always consult with the state and federal
The problem of fraud in the precious
metals mining industry continues to
plague Arizona investors. The Arizona
Corporation Commission’s Securities
Division has prepared this bulletin as a
guide for the type of questions individuals
should ask before investing in any mining
program. All investments have risk, and
mi ning i nvestm ents
no particular investment is guaranteed
not to fail, no matter how diligently an
investor has studied the program prior to
One of the first questions you should ask
before investing in a mining program is…
WhErE Is thE MInE loCatEd?
The exact location of the mine site is often
not disclosed in many mining investment
scams, yet surprisingly, people continue
to invest in these programs without
knowing where the actual mining is to take
place. Press the people who are offering
the investment to you for the exact legal meaningless—it takes literally hundreds
descriptions of the site—do not accept a lay or thousands of separate ore samplings
description such as “the proposed mine site to properly evaluate the true potential of
is located approximately twenty-five miles a mine site. Also, be aware that even an
northwest of Flagstaff, Arizona.” That type accurate assay only tells you the amount
of description tells you nothing at all about of certain precious metals in a specific ore
the true location of the site. If the offerors sample, not the amount of precious metals
cannot or will not provide you with the exact that can be economically extracted from that
location of the mine, DO NOT INVEST!! mine site or even that sample. No mining or
refining technique can economically extract
Once you know the exact location of the all of the precious metals present in an ore
mine site, your next question should be … body. In reading assay reports, certain
“red flags” signal that perhaps you are not
havE any assays bEEn receiving accurate information:
PErForMEd on thE orE?
Usually, offering materials do provide • Reports indicating the presence of
what the offerors claim to be assays, but a half ounce or more of gold per
beware. Assays are only meaningful if they ton of ore. A mine site with ore
are based upon a systematic and scientific values consistently this high would
program of ore sampling. An assay based represent one of the richest finds of
upon one or two ore samples is essentially the century!
min ing i nvestm ents
• Reports of precious metals not not provided you with any references,
normally found together in the same require them. If they have no references
ore. For example, while gold and silver they can give you, or if their references
are commonly found together, gold and are so vague that you cannot check on
platinum group metals are not. them, then the operators may not have
any mining or refining experience.
• Reports that traditional “fire assay”
methods will not give an accurate You should next ask …
reading of the precious metals
content of the ore, while the offerors’ What Is thE FInanCIal
“secret” or “revolutionary” methods CondItIon oF thE PEoPlE Who
will. A fire assay performed in a Want My MonEy?
correct manner will give an accurate Are the people to whom you will be
reading of the precious metals giving your money financially solvent?
content of any ore sample. Are they a newly created company with
little or no assets? Do they personally
• Assayers who meet certain have any financial stake in the venture,
qualifications are registered with or are they merely a group of people
the Arizona Board of Technical who want to enter a high risk venture
Registration; call the Board (602- using other people’s money? You don’t
364-4930) to see if the assayer know the answer to these questions
is registered, and if there is any until you see balance sheets, profit and
information available concerning loss statements, and other financial
public actions against the assayer. documents. Audited. Once again,
if these types of financial statements
If mining is currently going on at the site, are not provided to you, require them.
be sure to get copies of all production Remember that the most meaningful
reports. financial statements are those that
mi ning i nvestm ents
have been prepared by an independent
Once you are satisfied that the ore at the certified public accountant.
mine site has commercial value, you are
ready to ask the next question: Your next question is …
What Is thE PrIor MInInG or havE any oF thE PEoPlE
rEFInInG EXPErIEnCE oF thosE assoCIatEd WIth thE
Who WIll bE In CharGE oF thE oFFErInG bEEn thE subJECt
MInInG oPEratIon? oF Past aCtIon taKEn by a
Do not trust your money with people GovErnMEntal aGEnCy or
who have no prior experience in the PrIvatE Party?
mining industry. Mining is a highly Obviously, you want to know whether
skilled and technical profession, a field the people to whom you will be giving
that cannot be profitably pursued by your hard-earned money have a history
amateurs. If possible, check out ALL of law violations, civil lawsuits, or
of the mining and business references bankruptcies. Just as obviously, if the
provided by the offerors. If they have people who want your money do have
such histories, they will naturally be What arE thE rIsKs
reluctant to reveal their prior legal assoCIatEd WIth thE
problems to you. InvEstMEnt ProGraM?
All investments have some amount of
Contact the Securities Division for risk involved in them, and the general
information about federal or state rule is this: The greater the potential
securities law actions. Also, contact the profit, the greater the potential risk.
mining department, any other appropriate
state agencies, and the Better Business 1. What assurance do you have
Bureau. If the mine site is located on that the offerors will not simply
public land, contact the state’s land take your money and run? Is
department, or federal agencies such your investment secured by real
as the Bureau of Land Management or property or equipment? (NOTE:
the Forest Service. Review civil and It is a “red flag” if the promoters
bankruptcy court records. are guaranteeing that you will
not lose money, whether they
Having satisfied yourself that the people to are offering your money back
whom you may be giving your money do on demand or guaranteeing
not have a history of law violations, you that a certain amount of gold is
should next ask … available).
2. If the price of gold drops
What arE thE Costs and suddenly, would it still be
oblIGatIons InvolvEd In feasible to mine? Does the
InvEstInG In thE ProGraM? mining program depend upon a
How much is the investment going to continuous stream of investment
cost you? What are you to receive for capital in order to operate the
your money? A certain tonnage of ore? mine? If it does, what if the
A certain number of ounces of precious stream of money decreases or is
min ing i nvestm ents
metals? Stock? A pure cash return on your cut off? It can take millions to
investment? begin a viable mining operation.
3. Do the mine operators have any
How is your investment to be made? In conflicts of interest that could cause
a lump sum, or in the form of periodic them to devote less than their best
payments? Could you be required to efforts to the mining project?
provide additional money at some time in 4. Mining is inherently dangerous. If
the future? a worker gets injured at the mine
site, could you be held financially
Under the terms of the offering, must you responsible? If an injured worker
meet any obligations or perform any duties sues the mine, is there enough
other than making the investment? liability insurance to cover the
Once you understand the costs and worker’s claims?
obligations involved in investing in the If you are satisfied that you completely
program ask … understand the risks involved in
investing in the program, your next
question is …
EXaCtly hoW arE thE Can I aFFord to MaKE thIs
oFFErors GoInG to usE InvEstMEnt?
InvEstor ProCEEds? Be guided by your head, not your heart.
You need to know just where your Do not let “gold fever” lead you down
money will be going. Would some of an empty mine shaft. The basic warning
your investment funds be used to pay to keep in mind when considering
sales commissions to the offerors or any investment, including mining
others? Will your investment funds go investments, is this:
towards salaries, legal fees, or other
administrative expenses? How much IF YOU CAN NOT AFFORD TO LOSE
of your investment money is actually ALL OF YOUR INVESTMENT, YOU
going directly into the mining or CAN NOT AFFORD TO INVEST!
refining of ore? What types of fees are
going to be paid to the offerors? For to lEarn MorE…
what services? Arizona securities law For additional information on how to
requires that full disclosure be made to investigate any offering before you invest,
investors of the exact uses of proceeds see “How Do I Investigate?,” available
in the venture. Finally, before you on the Securities Division’s investor
reach for your checkbook, you need to information web site, www.azinvestor.gov
ask one more question… (Click on Investor Info Center).
mi ning i nvestm ents
Unwary investors are in danger today
online investment schemes
of being taken for a ride on the Internet.
State securities regulators around the
U.S. are concerned about the explosion
of fraudulent schemes now flourishing
on commercial bulletin board services
and the burgeoning web of computer
networks that make up the Internet.
Millions of U.S. households that
already have access to the major online
services are being exposed to hundreds
of fraudulent and abusive investment
schemes, including stock manipulations,
pyramid schemes and Ponzi schemes.
While the experienced pioneers who
explore the online frontier are aware of
some of the major rip-off techniques now
in use, the investment fraud problem could
reach epidemic levels over the next few
years as several million newcomers crowd
onto the once lightly traveled Internet.
Cyberspace has the potential to educate
investors, helping them to become savvy pending announcements, product
customers. innovations and new contracts, the
schemers seek to run up the price of
Today, any home equipped with a the stock, which starts rising as unwary
computer and modem is just a few investors read of the “great opportunity”
keystrokes away from a wealth of and buy shares. In response, the insiders
instantly accessible research data and take their shares (bought at the low, “pre-
financial news. State securities regulators hype” prices) and sell them into the rising
emphasize that the problem of illicit market. As interest builds, dozens of
and abusive online investment schemes messages may be posted about the stock.
have spread like wildfire as the result of
increasing Internet exposure. When the hype-fueled stock price falters,
the promoters may blame unnamed short
MaJor InvEstMEnt sChEMEs sellers. Sometimes, losses suffered by
Manipulation of obscure, the unsuspecting are made even worse by
thinly traded stocks. ruthless promoters who urge victims to
Most commercial bulletin board services “dollar average” and keep buying shares,
allow individuals to post messages not even at the falling prices. Talk of the
only under an alias...but multiple aliases. stock then disappears from the board.
Since it may be impossible for another Investors who are left holding the bag can
subscriber to ascertain the true identity of do little more than post plaintive messages:
on li ne i nvestm ent schemes
the individual behind the message (or even “Whatever happened to Company X?”
if a series of messages are being entered
by just one individual under various
aliases), there is enormous potential for
manipulation of little-known companies
that have a small float (the number of
shares trading hands).
Acting alone or with accomplices, one
company insider, broker, public relations
executive, or even just a large shareholder
can leave numerous messages calculated
to spark interest in an obscure stock. Once
a “thread” (in this case, a series of related
messages about a stock) is started, it will
show up on the computer bulletin board Misconduct by phony and unlicensed
and be readily accessible by anyone who brokers/investment advisers.
enters the bulletin board. Among the One state securities agency investigated
popular targets for cyber-manipulation is a case in which a woman held herself out
gold, silver and diamond mining stocks. on a commercial bulletin board service as
an investment adviser offering investing
Through a combination of puffery, advice and soliciting clients. The state
speculation and breathless claims of agency started to receive complaints
supposedly inside information about from around the nation, based on the
extreme claims the phony investment about public statements, disclosure
adviser made about the potential for language and penalties for intentional
return on investments and on her possible “misrepresentations and omissions”
mishandling of client accounts. intended to move stock prices.
In other instances, states are concerned that Promotion of “exotic” scams.
brokers may be attempting to drum up new The manipulation of publicly traded stock
business...without the supervision of their and misconduct by professionals are just
employer and while making liberal use of two types of problems that state securities
illegal assurances about the potential for agencies have detected on commercial
profit in certain investments. The problem bulletin board services and on the Internet.
here goes far beyond the oral comments In hundreds of other cases, messages have
that an aggressive broker might make to been posted promoting a wide variety of
a sophisticated client, since an on-line highly suspect, unregistered investment
message is available to be read by, not one, deals (e.g., wireless cable television,
but hundreds of thousands of investors. “build out” schemes, ostrich farming,
Additionally, states are concerned about oil, gas and mineral claims) as well as
brokers who may try to rope new clients flat-out rip-offs (e.g., pyramid schemes,
without regard for the interest in keeping including a number of twists on “chain”
individuals with a history of fraud and e-mail letters and Ponzi scams). These
abuse outside of the U.S. borders. so called “exotic” securities may pose
online investment schemes
a greater threat to consumers than other
Undisclosed interests of promoters. cyber schemes since out-and-out scams
The anonymity of cyberspace is exploited often appeal to individuals who do not feel
to the hilt by schemers who promote sophisticated enough to speculate on stock
fraudulent and abusive investment investments.
schemes. In reading a bulletin board
message about a stock, you have no Some of the investment fraud and abuse
way of knowing if the person involved problems now cropping up in cyberspace
is a company official, public relations are indistinguishable from those that have
representative, or market-making been in circulation elsewhere for years
brokerage firm. Has the person hyping and, in some instances, even decades. But
the stock been paid to do so and, if so, has access to the online world represents an
the fact been disclosed? (In one instance, enormous advance in the ability of con
an individual running a private bulletin artists to victimize the unwary. Even the
board disclosed there that he received fastest-talking boiler-room operator would
compensation for his stock promotion be hard-pressed to make more than 150
activities, but did not make a similar “cold call” telemarketing pitches in one
disclosure when he posted messages day, whereas the fast-buck swindler with
on major commercial bulletin board access to cyberspace can send e-mail to
services.) In some of these cases, the many thousands of individuals in less than
role of the person involved in the scheme one hour. The same con artist can then
is such that he or she is considered an post a message that may be read in a matter
“agent” of the stock issuer and, as a result, of weeks by tens or even hundreds of
is subject to strict legal requirements thousands of individuals around the globe.
of the Road
For Internet travelers
1. EXErCIsE CautIon promise of the online world in perspective.
Perhaps the most important thing to A failure to exercise the caution and
keep in mind is that there will never be skepticism to all unfamiliar investment
enough “cyber cops” to keep the online opportunities could be a serious misstep.
world free from fraud and abuse. Even Remember, if the return on the investment
though state securities agencies and other sounds too good to be true, it is!
investment regulators have mounted
serious efforts to spot and stop cyber- 3. don’t assuME your onlInE
fraud, the simple truth is that there are CoMPutEr sErvICE PolICEs Its
on li ne i nvestm ent schemes
far too many places in the online world InvEstMEnt bullEtIn boards
(particularly in the almost entirely Most online computer services do not.
unregulated Internet) for swindlers to When it comes to suspicious or even
set up shop. Even if all the federal and blatantly fraudulent investments, the vast
state regulators as well as the Financial majority of services take a “hands off”
Industry Regulatory Authority, and stock approach. Even the ones that do minimal
exchanges were somehow able to put policing are swamped by the volume of
aside all other tasks in a massive bid to postings and do not have the expertise to
shut down online investment scams, it spot investment swindles. In the “wild
is doubtful that the pervasive problem and woolly” world of the Internet, just
would be stamped out all together. This about anything goes. Nothing is in place
means that the person who ventures to prevent a con artist from posting one
into cyberspace should do so with great (or dozens) of pitches for a swindle. In
caution, being mindful of the fraud and this largely unregulated cyberspace
abuse that waits online. environment, often the only check on
abusive messages is “flaming” by other
2. don’t EXPECt to GEt rICh users.
QuICK In CybErsPaCE
The online world is filled with information 4. don’t buy thInly tradEd,
that can help you become an informed lIttlE-KnoWn stoCKs strICtly
investor. Unfortunately, cyberspace also is on thE basIs oF onlInE hyPE
home to a growing amount of investment These are the stocks that are most
fraud and abuse. The trick is to keep your susceptible to manipulation, unlike blue
excitement and expectations about the chips and other stocks with substantial
floats (the number of shares available to 7. don’t assuME that Just
be bought and sold), the price of low- bECausE soMEonE says
volume stocks can be moved through that thEy havE ChECKEd
relatively small strategic trades. This soMEthInG out that thEy
is why online hype usually involves havE donE so
previously unknown securities, often for Online stock swindlers make all sorts of
companies involved in trendy businesses. claims about visiting companies, inspecting
If a stock that is being hyped starts to mining operations and having personal
move up, proceed with extreme caution, conversations with company officials. You
since this may just be part of the overall may not be able to verify who is making
manipulation scheme. You could still end these claims...much less whether any of the
up holding the bag! Always take the time information is true or the claimed research
to do your own research using reputable ever took place. Keep in mind that an
print and database resources. established tactic of investment schemers
is to talk up mines and factories in remote
5. don’t aCt on thE advICE oF corners of the U.S. (or elsewhere around
PErsons Who hIdE thEIr oWn the globe) where it is impossible for you
IdEntIty to either visit in person or get meaningful
Keep in mind that many computer bulletin information.
board services allow people to use aliases
and nicknames. As a result, you may end 8. don’t ForGEt to bE on thE
online investment schemes
up dealing with an undisclosed broker, looKout For ConFlICts oF
investor, or company insider who is intent IntErEst
on driving up the price of a stock through A growing number of those who analyze
false information or baseless speculation stocks online are receiving cash or stocks
that is difficult or impossible to disprove. in exchange for making glowing comments
Don’t assume that two (or more) people about the companies in question. Some of
talking up a stock are actually two (or the individuals prominently disclose this
more) different people! fact, while others make little or no mention
of the fact that they are paid off. Make
6. don’t GEt suCKErEd by sure that you always know why someone is
ClaIMs MadE about “InsIdE so “high” on an investment opportunity!
This includes pending news releases, 9. don’t bE a “lurKEr”
contract announcements and products. In the slang of cyberspace, a “lurker” is
Investment bulletin boards and discussion someone who reads messages posted on
groups are crammed with hot tips about bulletin boards and listens in on discussion
impending developments sure to send a groups, but does not participate directly.
stock soaring in value. Just because these Most investment schemes promoted online
tips appear in cyberspace does not mean appear on the surface to involve just those
that they are exempt from federal insider people who are posting messages, but the
trading laws and rules. It is extremely reality is that the eight (or more) out of ten
unlikely that genuine “insider information” people who “lurk” rather than participate
is going to be publicly broadcast on an are the real audience for what are often
investment bulletin board. staged conversations designed to excite
the unsuspecting about the prospects 10. vErIFy IF thE IndIvIdual
for a stock. You may think that you are and CoMPany ProMotInG
listening in on a private conversation, a sECurIty arE rEGIstErEd
but the people who post messages in an WIth thE sECurItIEs
investment scheme know that you are out dIvIsIon
there...and they want you to read their Laws designed to protect small
messages. This “keyhole illusion” often investors from fraud and abuse also
convinces lurkers that they are privy to apply in cyberspace. A failure by an
genuinely “inside dope.” Don’t think you issuer or broker to follow the state
are safe from cyber-fraud just because you requirements is often a “red flag” of an
don’t speak up online. investment scam.
HoW A TYPICAl
“Is there anyone out there following Company X?”
on li ne i nvestm ent schemes
“I heard that Company X is about to make a major
announcement. E-mail me or call this toll-free number
to get an information package...”
“I spoke to Company X’s CEO, who confirmed details
of next month’s big news. I’ve bought 10,000 shares.
Look for share price to double in the next month.
Get it now!”
“Big news remains just around the corner. We hear
from a friend who has visited Company X that this is
going to be even bigger than we thought. There’s still
time to get in.”
“Short sellers are in the market! Keep the faith...this will
bounce back. The smart money will use the price drop as
an opportunity to buy more and dollar average.”
Promises or Problems?
For the average investor, promissory
notes may be viewed as a safe way to
invest short-term with reliable companies,
particularly in light of a volatile stock
market. Although promissory notes can
be legitimate investments, many bogus
and high-risk notes are often sold to
unwary investors. Before investing in
promissory notes you should ask questions
pro missor y n otes
and demand answers, making certain that
you understand how they work and what
risks they pose.
A promissory note is a form of debt that
a company may use to raise capital in
much the same way as a loan. Typically,
an investor agrees to loan money to the
company for a set period of time. In
exchange, the company promises to return
the investor’s funds with interest. The
investment sounds easy and safe, and
therefore, is attractive to investors.
thE ProMotEr capital. Instead of borrowing the money
The Commission has seen an increase from a traditional lender, such as a bank,
in the number of insurance agents, the note issuer is offering investors an
and others unlicensed to sell securities, opportunity to purchase its promissory
promoting investments in promissory notes. Usually, these notes mature in nine
notes. While touting high interest months and pay above-market rates.
rates, they usually fail to inform you
that promissory notes are high-risk The agent might encourage you to cash
investments with the potential for fraud. in a life insurance or an annuity policy
and roll the proceeds into the promissory
The hefty commissions offered to sales notes. Sometimes insurance agents
agents may blind them to the problems even invest their own money because
involved in selling these investments. they, too, are convinced it’s such a great
Some sales agents may know very investment opportunity!
little or nothing about the issuers of
the investments. These agents may Too often, the promissory notes and
not realize that they must be registered the company behind them are either
with the Securities Division to sell financially shaky or totally fraudulent.
promissory notes. Having an insurance And too frequently, the Commission’s
license does not mean an agent is Securities Division sees con artists who
automatically qualified to sell securities use investor funds to line their own
like promissory notes. pockets and disappear when the notes
A typical promissory note scam thE dECEPtIon
operates like this: Initially, the In addition, these investors may receive
con artist, who may or may not be authentic-looking promissory note
affiliated with the company issuing certificates complete with official, legal-
the promissory notes, persuades a sounding language and gold-embossed
sales agent with a rolodex of trusting seals. Such documents give a false sense
promi ssor y notes
clients to sell the notes. The con artist of security. In addition to the official
promises to pay the sales agent much appearance of the promissory note,
higher commissions than he or she the involvement of insurance agents
could receive from companies selling may also give comfort to investors.
legitimate investments —sometimes as Unlike telephone solicitors, insurance
much as thirty or forty percent. agents have a prior relationship with
their clients, which gives them instant
thE ProduCEr credibility and makes the investment in
Your licensed insurance agent, who may promissory notes appear to be legitimate
have already sold you a life insurance and sometimes the appearance of being
or annuity policy, now approaches “secured.”
you with an interesting “investment
opportunity.” The agent tells you that a Also, find out if the promissory notes are
“well-established” company is looking being sold from a brokerage firm. If not,
to expand its business and needs to raise don’t invest.
You should also be aware of any
investment “guaranteed” by a bond
from an offshore bonding company.
Check with the Arizona Department
of Insurance (see Directory of
Important Phone Numbers) to
verify whether or not a bonding
company is licensed to do business
Beware of any investment that
offers guaranteed above-market
returns with a maturity of less
than a year. Legitimate and low-
risk short-term investments do
not offer double-digit returns.
Be leery of any opportunity
that offers a “safe” nine-month
note from an obscure company
promising double-digit returns.
vErIFy bEForE you buy!
The Securities Division
has investigated and taken
enforcement action in a number
of cases involving fraudulent
promissory notes promoted by
unscrupulous, uninformed and
unregistered individuals. Visit
pro missor y n otes
www.azinvestor.gov and click on
“Press Releases” or call the Duty
Officer at 602-542-0662.
Before investing in promissory
notes, investors should always
check with the Securities Division
of the Arizona Corporation
Commission to confirm that the
notes are either registered or
exempt from registration. If you
cannot verify that the notes are
registered or likely to be exempt
from registration, hold onto your
Investments as Securities
Your interest in a real estate investment
opportunity may begin with a trusted
family member, friend, neighbor or
business associate who approaches you to
rea l estate inves tments
talk about some impressive financial gains.
An advertisement in a popular newspaper
or online service catches your eye with a
promise of guaranteed returns secured by
an interest in a piece of real estate.
What you may not realize is that some
of these investment opportunities may
be unregistered securities or worse yet –
scams. Whether a real estate investment
is a security or not is not always easy to
determine and depends upon the unique
facts and circumstances of the transaction
and not on what a promoter calls the
hoW do I KnoW IF What I aM
buyInG Is a sECurIty?
A general rule of thumb with which to
start is that if you as the investor are not real property or loans on real property
in control of the real estate transaction with service agreements – property
and are expecting a return on your management, rent or debt collection,
money, the transaction probably involves foreclosure services – that the promoter
a security. Because the investment may will provide you. The promoter, not the
involve a chunk of your life savings, investor, will make decisions regarding
consider consulting with an attorney the management of the real estate or
knowledgeable in securities law to the real estate loan. If you are buying a
provide a legal interpretation for you “package” and you will not have active
and evaluate any exemptions claimed by control over or management of the
the promoter. By law, the Commission’s real property or the loan, then you are
Securities Division cannot provide legal probably buying an “investment contract,”
advice to the public. which is a security.
undErstand thE InvEstMEnt Are you investing in a deed of trust?
The lure of large financial gains from a Although commonly called the deed
real estate investment opportunity may of trust investment, the product that
be enticing, but take your time, ask the the promoter is selling is a promissory
right questions and verify before you note secured by a deed of trust on real
buy. Most importantly, understand the estate. The law exempts from registration
investment and what it entails. If you requirements the sale of a note secured
don’t understand, don’t invest. Here are by a mortgage or deed of trust on real
some important questions to consider estate, but if the note and deed of trust
before signing on the dotted line: are “packaged” with other services the
real estate in vestmen ts
promoter will provide to you, then the
Are you buying an interest in real estate “package” you are buying is likely an
or in an entity that is buying or financing investment contract. The investment
real estate? A promoter may form a contract would not be exempt from
corporation, a limited liability company registration.
or a limited partnership that will purchase
real estate or make loans to other WatCh For rEd FlaGs
purchasers of real estate. The promoter oF Fraud
raises money for the entity to purchase A real estate investment opportunity may
or finance the real estate by selling only be as good as the person and the
equity interests in the entity. What the company who are standing behind it. Here
promoter is selling are ownership interests are some warning signs that the investment
in the entity. Those equity interests are opportunity may not be legitimate:
securities. A promoter may also borrow
money from investors to raise capital 1. A salesperson without a securities
for the entity. In that case, the promoter registration or valid exemption
is selling promissory notes, which are from registration. Having a
securities. real estate or insurance license
does not qualify an individual
Are you buying real estate that you can to sell securities. Contact the
control? A promoter may “package” Commission’s Securities Division
to determine the licensure status or the total amount of funds
of the promoter and product and secured by the deeds of trust
if there is a disciplinary history may far exceed the value of
– even if it is with someone you the property. Remember, all
know and trust. investments involve some form
of risk – the higher the rate of
2. A company without verifiable or return, the higher the risk of
audited financial information. financial loss. Only invest what
Beware if the company’s you can afford to lose.
representatives emphasize their
luxurious lifestyle and not 4. A limited time period to make
objective financial information a decision. Scams are often
that has been audited according to presented as a once-in-
acceptable accounting standards. a-lifetime opportunity
Request written information and promoters ususally
that fully explains the require an intestor to
investment, such as a make a quick decision
prospectus or offering before the opportunity
circular. The is gone. When it comes
documentation to your investment
should dollars, this high-
contain pressure sales
enough tactic is a warning
clear and sign of a possible
rea l estate inves tments
accurate scam. Having the
information to appropriate amount of
allow you or time is crucial for a
your financial thorough background
adviser to check on the promoter
evaluate the and product. This
company’s investigatie process
financial is know as “due
health and the dilligence.”
the investment. 5. An opportunity that sounds
too good to be true. The lure of
3. A deal with guaranteed returns wealth sometimes blinds potential
and little to no risk. Promoters investors with greed. Vet the
may claim the investment has investment opportunity with an
little risk since it is secured objective third party such as an
by a deed of trust, but such accountant, financial professional
investments are rarely without or attorney, someone not
risk. For example, the promoters associated with the transaction
may fail to record the deed of and without a hefty commission
trust for the investors’ collateral at stake.
What Is a varIablE annuIty?
A variable annuity is a contract between you
and an insurance company, under which the
insurer agrees to make periodic payments
to you, beginning either immediately or at
some future date. You purchase a variable
annuity contract by making a single
payment or a series of payments.
var ia ble an nui ti es
A variable annuity typically offers a range
of investment options. The value of your
investment will vary depending on the
performance of the investment options you
choose. Investment options for a variable
annuity typically are mutual funds that invest
in stocks, bonds, money market instruments,
or some combination of the three.
not sIMIlar to a
Although variable annuities typically
invest in mutual funds, they differ from
mutual funds in several important ways:
First, variable annuities let you receive Third, variable annuities are tax-deferred.
periodic payments. These payments can be That means you don’t pay taxes on the
for the rest of your life (or the life of your income and investment gains from the
spouse or some other person you designate). annuity until you withdraw the money.
This feature offers protection against the You can also transfer money from one
possibility that you will outlive your assets. investment option to another without
paying taxes at the time of the transfer.
Second, variable annuities have a death When you withdraw your money,
benefit. If you die before the insurer has however, your annuity income will be
started making payments to you, your taxed at ordinary income rates, rather
beneficiary is guaranteed to receive a specific than (usually lower) capital gains rates.
amount—typically at least the amount In general, the benefits of tax deferral
you paid to purchase the annuity. Your will outweigh the costs of a variable
beneficiary will get a benefit from this feature annuity only if you hold it as a long-term
if, at the time of your death, your account investment to meet retirement and other
value is less than the death benefit amount. long-range goals.
NOTE: Other investment vehicles, such as IRA, 401(k), and Keogh accounts, may provide simi-
lar tax-deferred income benefits, without some of the drawbacks of annuities.
bE aWarE oF thE rIsKs…
Surrender charges with “bonus credits” they claim will more
If you withdraw money from a variable rapidly increase the value of your account.
annuity during a certain period after a The problem is that these annuities
purchase payment (typically 6-8 years, typically also include larger surrender
but in some cases 10 years or longer), the charges and other charges, as well as
insurance company usually will assess limitations on certain features, such as the
vari ab le a nnu ities
a “surrender” charge (typically some death benefit, based on the time you may
percentage of your account value or of the hold the annuity before your death.
Other charges The Internal Revenue Code permits
The insurer may deduct charges for certain tax-free exchanges with respect to
mortality and expense risk (typically up variable annuities. However, the annuity
to 2% a year), for administrative fees, for you receive in exchange frequently has
underlying fund fees, and for other fees limitations that may affect its value,
and expenses. You need to be aware of particularly if you are not able to hold the
the amount of these fees, as they may annuity for a long time.
adversely affect the value of your annuity
investment account. QuEstIons to ConsIdEr bEForE
InvEstInG In a varIablE annuIty
Bonus Credits • Will you use the variable annuity
Some companies will try to sell annuities primarily to save for retirement or a
long-term goal? the investment funds.
• Are you investing in the variable • Other contract provisions, like
annuity through a retirement plan or surrender charges, eventually expire
IRA (which would mean you are not with an existing contract. However,
receiving any additional tax-deferral new charges may be imposed with
benefit from the variable annuity a new contract or may increase
over some other investment)? the period of time for which the
• Are you willing to take the risk that surrender charge applies.
your account value may decrease • You may also have to pay higher
if the underlying mutual fund charges, such as annual fees for the
investment options perform badly? new contract.
• Do you understand all the features of • You may not need the costly new
the variable annuity? features of the new contract.
• Do you understand all the fees • In many instances your broker is
and expenses the variable annuity getting paid a higher commission
charges and how they may affect for a variable annuity than he or
your investment return? she would for the sale of another
• Do you intend to remain in the securities product, such as a stock,
variable annuity long enough to bond or mutual fund.
avoid paying any surrender charges
if you have to withdraw money? You should specifically ask the person
• If a variable annuity offers a bonus recommending that you exchange your
credit, will that bonus outweigh any variable annuity the following:
higher fees and charges the product • What is the total cost to me of this
may charge? exchange?
• Does the variable annuity have • What does the change in the surrender
features, such as long-term care period or other terms mean for me?
insurance, that you could purchase • What are the new features being
separately for less money? offered? Why do I need or want
var ia ble an nui ti es
• Have you consulted with a tax advisor those features?
and considered all the tax consequences • Are those features worth the
of purchasing the variable annuity, increased cost?
including the effect of annuity payments • Will you be paid a commission for the
on your tax status in retirement? exchange, and if so, how much is it?
• If you are exchanging one annuity • Is there a “free-look” period when
for another, do the benefits of the I can cancel the transaction and
exchange outweigh the costs? receive a refund?
Generally, the exchange or replacement of Avoid signing any exchange form or
insurance or annuity contracts is not a good agreeing to exchange or purchase an
idea, for a variety of reasons: annuity until you study all of the options
• “Bonus” or “premium” payments the carefully, have all of your questions
insurance company makes to you are answered and are satisfied that the
usually offset by other charges you exchange is better than keeping your
pay the insurance company out of current contract.
viati ca l or life settlements as inv e s t me nt s
What Is a vIatICal
or lIFE sEttlEMEnt?
Viatical settlements involve the purchase
of an interest in a life insurance policy of
a terminally-ill person. Life settlements
involve the purchase of an interest in
a life insurance of a person whose life
expectancy may be compromised by
serious health issues.
Individuals who sell their life insurance
policies in connection with viatical
settlements are called “viators.”
Individuals who sell their life insurance
policies in connection with life settlements
are called “insureds.”
Selling one’s insurance policy may be
a desirable option, particularly when a
policy does not have cash value and loan
provisions. Usually, private companies
and insurance companies buy the
future rights to the policy at a discount
and often fractionalize that interest to Your investment may have tax
investors who receive a return on their consequences. Funds invested in viatical
investment when the viator/insured dies and life settlements may not be eligible
and the death benefit is paid. for an IRA, 401(k) or Keogh plan.
Consult with your licensed financial,
Viatical and life settlements can be tax and/or legal professional before
v iat ical or life settlements a s i nvestmen ts
legitimate investments and are often investing.
promoted as a way for people to do a
“good deed” for humanity, providing The life expectancy estimate may be
much-needed financial resources to a inaccurate. Know who is estimating the
family drained from caring for an elderly life expectancy of the viator/insured, and
or terminally-ill person. whether that person has the knowledge and
experience to make a realistic estimate.
Know the Risks It could be in-house staff, independent
Investing in viatical and life settlements, physicians or a specialty firm that analyzes
however, is not like buying certificates of medical and actuary data.
deposit. Viatical or life settlements are
high-risk investments. Before you buy, annual vErsus FIXEd ratE
consider the following: oF rEturn
Viatical and life settlement promoters
Viatical or Life Settlements are not may advertise a return on investment
liquid investments. You receive a return that seems enticing, but this percentage
only when the insured dies and the death rate can be misleading. With viatical
benefit is paid. You may have to wait and life settlements, an “annual” return
several years to realize a return on your cannot be calculated until the policy
investment. matures. This means that your return
depends on when the viator/insured
The rate of return is not guaranteed. dies, which promoters cannot precisely
The return depends on when the viator/ predict in advance. Thus, the advertised
insured dies, which is very unpredictable. return is typically a “fixed” rate of
Medical advances can further complicate return, which disregards an investment’s
the estimation of the viator/insured’s life holding period.
The death benefit may not be paid. The An investor purchases an interest in a
insurer may not pay the death benefit if the viatical settlement contract for $7,500 on
policy was obtained fraudulently and the a policy with a death benefit of $10,000.
contestability period has not expired. The The XYZ Viatical Company advertises a
policy may lapse if the premiums are not return of up to 33% on a viatical contract
maintained. If the premiums are prepaid expected to mature in 12 months. The
in escrow for a certain period, know who fine print indicates that if the viator
will pay the premiums if the viator/insured lives past the estimated maturity date,
lives beyond his or her life expectancy. To the investor is NOT responsible for
prevent a policy from lapsing, you as the premiums. (NOTE: calculations are
investor may have to pay premiums. based on simple interest, rounded).
Before investing, calculate the fixed rate of return:
Death Benefit – Purchase Price = $10,000 - $7,500 = 33%
Purchase Price $7,500
viati ca l or life settlements as inv e s t me nt s
The viator/insured expires exactly one year later.
(Death Benefit - Purchase Price) ÷ Purchase Price = .33 = 33%
Holding Period 1 year
The viator/insured expires exactly two years later.
(Death Benefit – Purchase Price) ÷ Purchase Price = .33 = 17%
Holding Period 2 years
The viator/insured expires exactly three years later.
(Death Benefit – Purchase Price) ÷ Purchase Price = .33 = 11%
Holding Period 3 years
In the first scenario, the fixed and annual by viatical promoters. Investigations
returns are identical. The investor realizes revealed salespeople telling investors that
a 33% annual return, but only because their money was “safe and guaranteed”
the policy matured in the first year. In as they glossed over or failed to disclose
the second and third scenarios, the annual investment risks.
returns (17% and 11%) are each lower than
the advertised fixed return. Additionally, some insurance policies may
be “clean sheeted,” meaning the insured
When comparing all three examples, note misrepresented his or her health status
how the rate of return decreases as the or medical history during the application
investment holding period increases. This process. Life expectancies become grossly
means that the longer you have to wait for and recklessly underestimated, thereby
the investment to “mature,” the lower your inflating the potential return on investment.
rate of return will be. Keep in mind that Moreover, some policies are manufactured
if you as the investor are responsible for out of thin air, resulting in investors
paying insurance premiums, the overall purchasing viatical and life settlement
return will be diminished further. contracts that did not even exist!
vIatICals and Fraud Many of the salespeople in these cases
The Commission’s Securities Division were insurance agents seduced by high
has investigated and taken enforcement commissions and lulled into believing
action against a number of individuals that viatical and life settlements were
and companies for promoting unregistered not securities. In Arizona, viatical and
viatical settlement contracts in Arizona. In life settlements are securities and sales
several cases, the Division alleged fraud are governed by the Arizona Securities
Act. Any salesperson offering and selling conversion,
more than three viatical contracts per year • The contact information for the party
in Arizona must be registered with the responsible for renewing a term
Commission’s Securities Division. policy, if necessary,
• The amount of your investment that
KnoW your rIGhts will be set aside to pay premiums,
v iat ical or life settlements a s i nvestmen ts
Arizona law further specifies that a viatical • The contact information for the party
company should disclose: who will be the policy owner and the
• Your right to cancel the investment person who will be responsible for
and receive a refund, paying premiums,
• Contact information for the • The date when you may have to pay
insurance company that issued the premiums, if necessary, and
policy, • The separate amounts of your
• The policy number, issue date, and investment that will be used pay the
type, seller’s commission, buy the policy
• The policy premiums and terms of and pay administrative expenses
policy payments, along with other transaction costs.
• The total value of the policy and
your percentage of ownership, vErIFy bEForE you buy!
• Whether or not the policy is The Arizona Corporation Commission’s
contestable; if so, the risk that the Securities Division warns investors to fully
insurance company may cancel the verify all of the above information with
policy or refuse to pay claims made the viatical company BEFORE they invest.
during the contestable period, The next important step is to contact the
• The contact information for the Division’s Duty Officer at 602-542-0662
party responsible converting a or toll free, 1-866-VERIFY-9, to verify
group policy to an individual one, registration status of the viatical contract,
including the terms and costs for the the company and the salesperson.
small b usin ess i nvestments
Small businesses may raise start-up and
growth financing by selling stock or debt
to the public. This type of financing often
is considered public venture capital. In
fact, many investors view such financing
as an opportunity to get in on the ground
floor of emerging businesses and to realize
huge profits as the small businesses
grow into large ones. BEWARE! Small
business investments are associated with
high risk. Purchasing the stock or the
debt instruments of a small company
is a highly speculative investment.
Statistically, most new businesses fail
within the first few years of operation.
rEGIstratIon oF sMall
Arizona offers Uniform Limited Offering
Registration (ULOR) to small businesses.
ULOR is a simplified registration procedure
to reduce the costs of a public offering.
Lower costs make it financially feasible
for small businesses to sell their securities dollars that would otherwise be spent on
to the public. Corporate officials describe a consumer purchase, such as an extra
their business and their business proposals vacation or a down payment on a boat or
on a Form U-7. The U-7 follows a question recreational vehicle.
and answer format to elicit information very
similar to that found in a standard business The ability of a new or small company
plan. Once the securities are registered to provide a return on its debt offering
for sale by the Arizona Corporation or appreciation on its stock offering
Commission, the Form U-7 becomes the also is uncertain. Never let a securities
offering document for investors. salesperson (who is paid by commission)
convince you that the investment is without
Small businesses may also offer their risk or that the Arizona Corporation
securities without registration if the Commission endorses an investment
businesses follow the terms of specific because it has been registered for sale.
exemptions from registration. The Any such assurances are false, and you
businesses should still give an offering should report the salesperson to the
document that describes the company and Commission’s Securities Division. Also,
the offering to potential investors. never let a securities salesperson rush you
to make an investment decision. Always
Whether offered under an exemption take the time to read and understand the
from registration or as a registered public offering material.
small business in vestmen ts
offering, securities of small businesses
include investment risks you need to Another uncertainty in venture investments
consider thoroughly before investing. is that they are almost always highly
Read the following discussion closely to illiquid. The securities technically may be
determine if an offering is within your freely transferable, but the resale market
risk “comfort zone” and satisfies your may be “thin” or nonexistent. Thus,
investment objective. not only is your potential for profit not
guaranteed, but you may be unable to sell
What arE your your securities.
The overriding principle that should KnoW your InvEstMEnt
control any decision to invest in a small stratEGy
business is: Never make a venture Typically, professional venture capitalists
investment that you cannot afford to lose do not invest large portions of their funds
entirely. in a single company. Instead, they spread
their risk by investing in a large number of
KnoW thE rIsKs companies and hoping that a few, highly
The ability of a small, vulnerable enterprise successful investments will more than
to survive in a competitive business climate offset the many unsuccessful ones. If you
is not known. Given this uncertainty, never plan to invest large amounts of money in
use funds for a venture investment that small businesses, you should carefully
might be needed for necessary expenses, consider your strategy. Even when using
such as your children’s education or your this strategy, do not invest funds you
own retirement. Instead, use discretionary cannot afford to lose entirely.
hoW to analyzE your Industry
vEnturE InvEstMEnt Make sure that all of your questions and
Assuming that you have discretionary concerns are addressed. In fact, you may
dollars to spend on a venture investment, want to meet the management team about to
what factors should you consider when have the use of your money. Remember to
making an investment decision? Although focus on their prior business history and not
there is no set formula for making on their rehearsed sales presentation.
successful investment decisions, certain
factors are often considered particularly Always consider the company’s industry. A
important by professional venture investors. growth industry is desirable, but you must
Some of these factors are discussed below. pay careful attention to the ease of entry into
Carefully consider the factors below while that industry or market and other competitive
reviewing the offering documents. If you factors. The offering document to investors
have any questions, require management often lacks much detailed information on the
to answer all questions to your satisfaction company’s primary or related industry. You
before you invest. may wish to conduct your own industry
investigation. Study research reports by
ManaGEMEnt securities analysts and statistics in trade
Most professional venture investors single journals to learn about growth trends and
out management quality as the most the financial health of competitors. Articles
significant factor in the success of a small in the business press also are helpful,
small b usin ess i nvestments
business. Inexperienced investors often give but reflect only the subjective views of
too much weight to a glamorous product and companies in the industry.
too little weight to management experience,
skill and integrity. Critical questions are: Finally, when analyzing a new industry,
• How much experience does do not confuse a “need” with a “market.”
management have in the industry, in Much advertising and other expensive and
a small business and in financial and time-consuming selling efforts may be
marketing functions? required before customers actually purchase
• How successful were the managers products that meet their particular “needs.”
in previous businesses?
• Has management prepared MarKEtInG
contingency plans for an unexpected Do not overlook the cost of marketing
death or resignation of a key and the time it takes to enter a market. A
executive or product developer? classic analytical trap is to estimate the
• What is management’s reputation in total size of a market and then to assume
the local business community? that the company somehow will obtain a
• What is management’s salary and percentage of that market without actually
benefits package? Is it appropriate analyzing what is involved to achieve that
given the company’s financial level of penetration. This type of analysis
condition? is simplistic and misleading. Consider it to
• What position if any, is management be a warning sign if encountered.
retaining in the company’s
ownership, i.e., what percentage of An accurate marketing plan makes a step-
stock will be held by management? by-step analysis of the sales strategies, the
efforts, and the time required to penetrate a
particular market niche. Evaluate this plan
in terms of the company’s management
and financial resources to be expended on
marketing and the resources available to
the company’s competitors. This analysis
will provide a realistic assessment of the
company’s ability to capture market share.
Examine the financial statements
(including the footnotes). Look to the
cash and debt positions, among others, to
indicate performance potential and a solid
If the corporation is new, it will have no
track record. Instead, you must base your
investment decision on assumptions of
future sales and expenses. Inquire about
small business in vestmen ts
• Are the assumptions realistic?
• Are the cost components and profit
expectations within normal industry
• What corrective actions will
management take if projected results
are not obtained?
A good business library should be able
to give you the information to confirm or
reject the financial conclusions made in the
offering document. Also, study again the
industry trade journals. Notice whether
the financial statements are reviewed or
audited. A review is substantially less
comprehensive than an audit.
While a review may bring to the
accountant’s attention significant matters
affecting the statements, there is no
assurance that there are not significant
adjustments that must be made in order to
fairly present the issuer’s financial position.
Read the accountant’s report carefully.
Finally, consideration of financial If the company is not likely to develop a
projections will help to put a value on the secondary market in its securities or is not
price of the issuer’s securities. Do not likely to be sold within a reasonable time, it
overvalue the potential for profits and thus may not be a good investment regardless of
pay too much for securities in a company its prospects for success. Your dollars and
that lacks a history of operations. No your percentage of the profits they helped to
matter how successful the company may generate will be “trapped” in the company.
become, the investment is not good if the Being a minority security holder in a small
price of the securities is too high. company is generally not a happy prospect.
Management may receive a good return
usE oF ProCEEds indefinitely through generous salaries and
How will your investment be used by the bonuses, if the company is successful but
issuer? Purchases of equipment, facilities remains illiquid. In this regard, be wary
or distribution routes are examples of of family businesses. Review the various
investment in a company’s growth. types of companies whose securities are
Expenditures on management salaries and publicly traded. This should give you
other “overhead” or administrative items insight as to whether the particular type of
may not contribute to the company’s company under consideration will offer
profit. The “Use of Proceeds” is investors an exit strategy.
discussed in the offering document. If
you are concerned or do not understand usE your bEst JudGMEnt
small b usin ess i nvestments
the disclosure material, ask management The sale of small business debt and stock
for an additional explanation. offerings enhances the state’s economy and
provides additional jobs. A larger capital base
EXIt stratEGy allows Arizona businesses the opportunity
Before you purchase any stock or debt to grow. Likewise, opportunities to invest
instrument of a small business, consider in small businesses give Arizona residents
how you will eventually sell your new opportunities for investment success.
investment. The two standard methods However, investors must balance the potential
are selling your investment in the public for success against the inherently risky
securities markets or receiving cash nature of small business investments. They
or some other form of compensation should consider discussing any investment
resulting from a merger or an acquisition opportunities with their attorneys, accountants
of the company. or other business advisors.
Remember, if you are cautious
and prudent in making investment
decisions, your chances of obtaining
a good return will be improved
p reventing and resolvin g pro blems
Most brokerage firms and their
salespeople deal honestly and fairly
with their customers. Sometimes,
however, difficulties and disputes can
arise and, in some instances, fraud
and theft may occur. The best defense
against problems is to be in contact
with your salesperson and make
certain your investment objectives and
risk tolerance are clear and then read
your trade confirmations and monthly
statements to check for problems.
Because investing in securities
always involves an element of
risk and can be quite complex,
selecting the right person to give
you investing advice or manage
your money is essential to achieving
your investment goals. Consider the
following steps before you select a
financial professional and hand over
your hard-earned money.
stEP 1: rEsEarCh your Unlike con artists who utilize high-
broKEr ChoICE pressure sales tactics, legitimate financial
The first step is to generate a candidate professionals should take the time to ask a
list of financial professionals from people series of questions about your income and
or professional associations you trust. assets, your career and retirement plans
Next, get the background facts about the and the level of risk you are willing and
individual and firm that will handle your able to take in investing. This information
investments. This is one of the most is your financial profile.
important ways that the Securities Division
can help you. Contact the offices and ask stEP 3: KEEP aCCuratE and
these questions: CurrEnt rECords
• Is the individual (broker or Your financial profile should be accurately
salesperson) registered to sell reflected on your new account form.
preventing a nd resolving problems
securities in Arizona? Check the form and get a copy for your
• Is the firm (brokerage or dealer) records. If your investment strategy
registered to sell securities in Arizona? changes over the years, be sure that your
• Does the broker or brokerage records accurately portray your revised
firm have a history of regulatory objectives.
violations, disciplinary actions or
investor complaints? This form prepared by your salesperson
contains your financial and investment
You may ask: Does having a securities objective information and is the basis
license guarantee that person is honest? for your salesperson’s securities
The answer is “no,” but in verifying that recommendations.
your financial professional is licensed and
without a disciplinary history, you have Some important points to follow:
decreased your chances of falling victim to 1. Fill out forms accurately and
a con artist whose main objective is to steal thoroughly. Do not sign documents
your money and run from the law. to be filled out later by the financial
After narrowing down a candidate list, 2. Know the terms of any agreement you
schedule a face-to-face or telephone sign. If you do not understand the
interview with each person to discuss terms, do not sign on the dotted line.
how your investment account should be 3. Never make checks payable to the
managed. financial professional.
4. Require written documentation of all
stEP 2: MatCh your rIsK agreements and transactions.
tolEranCE & InvEstMEnt 5. Take notes on all telephone
stratEGy conversations and file with your
Before meeting a financial professional, records.
think about your financial goals and
objectives. Are you interested in primarily stEP 4: taKE an aCtIvE rolE In
income, capital appreciation or quick ManaGInG your aCCount
profits? Also, carefully evaluate how much Keep on top of the activity and
money you can afford or are willing to lose. performance of your account and question
anything that does not seem right to you. and keep asking until you get an answer
If you do not get a satisfactory answer you understand. If not, obtain a second
from your salesperson, contact the opinion from an objective third party
compliance department of the brokerage you know, someone who is not earning a
firm or the securities regulators. No one commission on the investment.
cares as much about your money as you do
– be ready to assume the responsibility of If you’re pressured by a financial
watching over it. professional to make a hasty decision, just
say “no.” After all, it’s your money and no
Do so even if you have a discretionary one cares more about it than you do. Keep
account where the financial professional in mind that in most situations, legitimate
buys and sells without your prior approval. investment opportunities should still be
Since almost all transactions must have available tomorrow.
p reventing and resolvin g pro blems
your approval prior to any orders being
entered, any trades or other activity entries stEP 7: KEEP thorouGh
that you have not authorized should transaCtIon rECords
be questioned with your salesperson. You should save all of your transaction
Brokerage firms send trade confirmations records and copies of correspondence
listing the quantity, description, and price in case they are needed to support your
of every buy and sell transaction. Likewise, version of facts in a dispute. Never send
monthly account statements recap all the originals of your documents to your
activity—trades and other accounting salesperson or brokerage firm. Retain the
entries—that have taken place in your originals and send copies as requested.
If the salesperson is unable or unwilling
When you receive any mail from your to resolve your concerns, send a written
brokerage firm, you should immediately complaint to the manager of the branch
review it. A delay in notifying the where your account is located or to the
brokerage firm of trade problems may compliance department of the brokerage
result in a change in market value that firm. The letter should include details
will discourage a voluntary correction or of your concerns and copies of any
adjustment by the firm. documents that help illustrate the
problem or error.
If there is an error, insist that it be
corrected and get a copy of a corrected Saying your account is losing money
trade confirmation or other written because of the recommendations made
acknowledgement of the correction. Take by your salesperson does not give the
written notes of telephone conversations in firm or a regulator any clue as to the
case you need them later. nature of the problem you are seeking
to resolve. Refering to your notes,
stEP 6: vErIFy bEForE you buy be as specific as possible by giving a
Ask for written “disclosure” information. chronology of conversations and other
Review it carefully and make sure that events, identifying specific transactions
you understand all of the risks involved in that are in questions and describing
the investment. If you have questions, ask your concerns with the salesperson’s
statements or actions related to the business in securities. State securities
transaction. regulators can also work with other law
enforcement agencies in bringing criminal
You may also want to send a copy of charges. However, neither state nor
that letter, along with a complaint, to the federal securities regulators can represent
Financial Industry Regulatory Authority. or advise you in seeking monetary
While state and federal regulators settlement.
cannot represent you in an attempt to get
your money back, they can review the lIMIts oF InsuranCE
activity and practices of salespeople and Don’t be misled by account insurance
brokerage firms to determine if violations provided by brokerage firms. Nearly
of state or federal securities laws have all brokerage firms are required
occurred. to contribute to an insurance fund
preventing a nd resolving problems
administered by the Security Investors
These agencies can take various actions Protection Corporation (SIPC), which
that affect the license or registration of covers customer account assets should
the individual or the firm to conduct the brokerage firm go out of business.
SIPC insurance does not protect an house or private counsel in defending
investor from loss of market value or bad arbitration claims.
advice (see page 61 of this booklet). No
one can predict exactly how a security Arbitration procedures are designed to
will perform at a given time in the future. streamline the process and be less costly
Losing money is not, in itself, a violation to the parties. The parties also agree that
of securities laws. Actual recovery of lost the arbitration decision is binding and
funds must be pursued directly by the not subject to appeal (except on limited
customer through one of four ways: procedural grounds).
1. File a complaint with the brokerage 4. Another option available through
firm and attempt to reach a voluntary FINRA is mediation. Similar to
settlement. arbitration, and often suggested after
p reventing and resolvin g pro blems
an arbitration claim has been filed,
2. State securities laws provide for civil mediation brings the parties together with
remedies for certain types of violations a professional mediator who will not
such as unlicensed securities activity, render any decision but who will act as
misrepresentation or fraud. State laws a go-between to help the parties reach a
allow you to take your claim to court if it mutually acceptable settlement.
is made within a prescribed period of time
defined in the law. You should consult with This process is designed to be even less
an attorney about your ability to bring an costly than either arbitration or court action.
action in state or federal court for securities It does not necessarily require an attorney,
law violations. and it involves the shortest time from claim
to resolution. If mediation fails to resolve
3. Many brokerage firms require the dispute, arbitration can still proceed.
customers to sign what is known as a
Predispute Arbitration Agreement that Remember, your first attempt to resolve
may be part of a more all-encompassing any problems or concerns with your
customer or margin agreement. These account should be with the salesperson and
arbitration agreements bind the parties the brokerage firm. However, do not wait
to resolve most disputes relating to the for a matter to correct itself! If a resolution
customer’s account via the arbitration is not forthcoming, do not hesitate to
process. Some agreements even specify contact a regulatory authority or seek legal
in which forum the arbitration claim advice.
must be filed.
stEP 8: WatCh For Fraud
Arbitration differs from court action in and abusE
that the parties present their case to a Although the vast majority of financial
panel made up of industry and public professionals are honest, there are brokers
members who will hear the testimony and advisers who engage in misconduct.
and then jointly make a decision. You Here are some major types of problems:
are not required to have an attorney to
pursue arbitration but most brokerage 1. Unsuitable investments.
firms do utilize the services of in- Brokers must follow what’s called the
“know your customer” rule. The rule Remember, avoid responding to
requires them to make certain that the solicitations over the telephone or the
investments they recommend to you Internet without thorough investigation.
“match” your financial goals and the
amount of risk appropriate for you. IF a sErIous ProblEM arIsEs
What if you suspect that there may be
2. Unauthorized Trading. a serious problem with the way your
Your broker is required by law to get your financial professional has handled your
permission prior to trading in your account. money?
Trades carried out without your permission
are “unauthorized,” unless you give Immediately contact the financial
him or her discretion over your account. professional’s manager and explain your
Unauthorized trading is illegal and should view of the problem. Spell out what
preventing a nd resolving problems
not be tolerated. resolution you expect within a specific
period of time. If the communication is in
3. Misrepresentation/omissions of person or over the telephone, follow up in
material facts. writing. Keep copies of all correspondence
Let’s say that your broker tells you for your records.
that investing in a new issue of stock
is as “safe as a CD.” This is an If the situation has not been corrected in
example of what regulators refer to as the specified time, contact the contact the
a “misrepresentation.” Your broker is compliance division of the brokerage.
obligated to be truthful—and complete— Send a copy of this letter (and any
in presenting an investment opportunity to subsequent letters) to the Securities
you. Omission of material facts is also a Division.
serious violation of securities laws.
If you do not receive a satisfactory
4. Churning/excessive trading. resolution at this stage, you can hire a
Most investment professionals earn private securities attorney to represent
commissions when they buy and sell you as well as file a written complaint
investments on behalf of their clients. If with the Securities Division (see page 63
your broker trades excessively in your for specific instructions on how to file a
account, you could have a valid claim complaint).
against that broker for “churning.”
It is crucial that you don’t wait to act!
5. Theft of Funds. State laws limit the amount of time you
One of the most devastating situations a have to take action against a financial
small investor can encounter is actual theft professional. Time could run out, making
by a broker or financial professional. This it impossible for you to take steps to
type of illegal behavior sometime occurs recover your losses.
even if the financial professional works
at brokerage firm with oversight by a
This article is based in part on information provided by:
national Association of Securities Administrators (nASAA) www.nasaa.org or call 202-737-0900
Investor Protection Trust (IPT) www.investorprotection.org or call 202-775-2113
Virtually all brokerage houses require their
customers to agree to arbitration instead
of going to court. This requirement is
usually contained in the agreement you
sign when opening a new account.
Where do you get started in the arbitration
arb itratio n a nd yo u
process? First, consult your account
form to identify the arbitration forum
designated by the brokerage firm. Then,
contact the appropriate forum and request
a “demand for arbitration” packet.
The packet will explain how to file an
arbitration claim. If you have any questions
about the information contained in the packet,
contact the organization sponsoring the forum.
FIlInG an arbItratIon
Among the documents you will be asked
to complete is a “statement of claim,”
which sets forth the nature of the dispute,
the amount of the claim involved, and the
damages that you are seeking. investor arbitration panels consist of three
members: a chairperson, one panelist from
Your statement of claim should be focused outside the securities industry, and one
and 100 percent accurate. Exaggerated panelist from within the industry.
claims or inaccuracies can destroy your
credibility and any chance of recovery. Prior to your hearing, you will be given an
The damages you seek should be opportunity to object to potential arbitrators
reasonable and based on the actual losses if you have a legitimate reason for doing so.
attributable to the broker’s misconduct.
Once you have filed the necessary
should you GEt documents and fees, you (the claimant)
rEPrEsEntatIon? will be notified of any requests by the
Investors are not required to be represented respondent (the broker/brokerage firm) for
by legal counsel in arbitration. Those who additional information. You must respond
are unfamiliar with securities laws and in a timely manner to these requests.
the process of arbitration, however, often
choose to hire an attorney to represent them. You will be informed of the proposed date,
place and time of the hearing. Arbitration
If you intend to seek legal representation, hearings are not conducted in courtrooms, but
finding an attorney familiar with securities laws in conference rooms or hotel meeting facilities.
and how investor arbitration works is important.
Be sure to do your homework by thoroughly The hearing, while more informal than a
checking out attorneys who are unknown to courtroom proceeding, will follow guidelines
you. Determine the potential cost of legal for the presentation of evidence and testimony,
help and the fee options available to you. rebuttal, opening statements and closing
arguments. The arbitrators will make a
FIndInG a laWyEr decision based on the testimony and supporting
The Arizona State Bar Association or your evidence you and the respondent submit.
ar bi tration an d you
county bar association may be able to assist
you in finding a qualified lawyer. One national At the end of the hearing, all parties to the
organization, the Public Investors Arbitration claim will be excused while arbitrators
Bar Association, can identify lawyers in discuss their findings. You will be notified
Arizona with the appropriate background. For by mail of the decision of the arbitration
telephone numbers, see page 69 of this booklet. panel, normally within 30 days.
thE arbItratIon ProCEss If the decision is in your favor, the notice
When you agree to the arbitration process, you you receive will specify the amount
agree to accept the outcome of the arbitration. awarded and the terms of payment. The
For this reason, it is important that you fully respondent will be required to pay your
understand how the arbitration process works. claim within a specific period of time, in
most cases within 30 days of the award.
The methods of selecting arbitrators Awards not paid within the specified time
vary among organizations, but most frame will bear interest charges.
This article is based in part on Information provided by:
national Association of Securities Administrators (nASAA) www.nasaa.org or call 202-737-0900
Investor Protection Trust (IPT) www.investorprotection.org or call 202-775-2113
s e curit ie s investor protecti on co rpor atio n
What Is sIPC?
The Securities Investor Protection Corpo-
ration (SIPC) is a nonprofit, membership
corporation, funded by its member securi-
ties dealers. Although it is not a govern-
mental agency or regulatory agency, SIPC
has the ability to return funds and secu-
rities to investor if the securities dealer
Most all securities dealers registered with
the Securities and Exchange Commis-
sion (SEC) are members of SIPC, and are
thereby required to display an official sign to
notify investors of their membership. If a secu-
rities dealer is not a member of SIPC, the firm
must disclose this fact to investors. To verify
if a firm is an official member, call the SIPC
Membership Department at (202) 371-8300.
The coverage provided by SIPC is some-
times confused with that provided by the
Federal Depository Insurance Corporation the firm and handle the liquidation and re-
(FDIC) since both provide insurance cov- imbursement process for investors.
erage to protect investors. The FDIC guar-
antee only applies, within certain limits, to SIPC coverage also includes protection
deposited funds in saving/checking ac- against unauthorized trading in your secu-
counts, money markets and certificates of rities account at the brokerage firm. This
deposits held in its member bank and thrift protection can also apply to firms that are
institutions. Investments such as mutual still financially solvent.
funds, individual stocks and bonds that you
may have purchased at an institution are sIPC EXClusIons
not covered by the FDIC. It’s important to note that SIPC coverage
does NOT include the following:
Though SIPC protection ends 180 days after • Financial losses due to decreases in
the securities dealer loses its SEC registra- your investment’s market value,
tion, it can be extended in some instances. • Unsuitable recommendations made
If, for example, a member broker becomes by your broker,
financially insolvent, SIPC can request that • Cash on deposit not designated to
the federal courts appoint a trustee to liqui- purchase securities, and
date the firm and return funds to investors. • Many limited partnerships
When the case involves a small securities and interests in precious metal
dealer, SIPC may take direct control over commodities.
ar bi tration an d you
The Securities Division of the Arizona
Corporation Commission is responsible
for regulating the securities industry in
the state of Arizona. And one of its main
functions is to oversee the firms and indi-
viduals that engage in the offer and sale of
securities to the public.
investor c ompla ints
What thE sECurItIEs dIvIsIon
Can do For you:
• We will assign your complaint to an
employee of the Securities Division
• We may make inquiries and/
or conduct an investigation to
determine if a violation of the
securities or investment management
acts we regulate has occurred.
What thE sECurItIEs dIvIsIon
Cannot do For you:
• The Securities Division cannot
give you specific legal advice or
refer you to a particular attorney or When filing notice of a complaint via
investment firm. email, keep in mind that a hard copy of
• The Securities Division cannot your completed complaint form and sup-
directly recover money for you. You porting documentation must still be pro-
may wish to employ an attorney to vided to the Securities Division.
assist you in the recovery of your
investment. Keep originals in your files. The copies
of the documents you should submit with
hoW to FIlE a CoMPlaInt your completed complaint form include:
The first step in the complaint process is
the completion of a complaint form. You • All envelopes in which you received
can find the form online by visiting www. information relating to your investment;
azinvestor.gov and clicking on Investor • Letters;
Complaints or simply request one be sent • Confirmations;
to you by dialing 602-542-4242 or toll free, • E-mail correspondence;
1-866-VERIFY9 (837-4399). • Pamphlets;
• Offering circulars;
• Prospectuses or written offering
NOTE: The online complaint form is form memoranda;
filler that can be filled out on the computer • Purchase agreements;
and then printed and mailed to the Division. • Stock certificates;
The Division continues to work toward • Advertisements;
providing the public with the ability to • Money order receipts or canceled
electronically submit complaints, but that checks (copies of front and back) by
option is NOT yet available. which you made payments; and
• Other written material that may
support your complaint.
You can file a complaint with the Securities
in vestor co mpa ints
Division by U.S. mail, facsimile and email. What should I say
In My CoMPlaInt?
By Mail: Send the completed complaint The more information you provide, the
form, together with copies of supporting more likely we will be able to promptly
documents relating to your investment, to: decide if any securities laws have been vio-
Securities Division—Complaints lated. The following information is critical
Arizona Corporation Commission to investigate the subject of your complaint:
1300 W. Washington Street, 3rd Floor
Phoenix, AZ 85007 • Names, addresses, telephone
numbers and other identifying
By Fax: You may also fax your completed information for any person or entity
complaint form and copies of supporting you mention in your complaint.
documents to the Securities Division at • Details of any transaction or activity
602-594-7470. you think violates the Arizona
Securities or Investment Management
By Email: Send notice of your complaint Acts. Present the events in the order
to firstname.lastname@example.org. in which they happened, using dates
whenever possible. stEPs to taKE IF your
• Copies of documents, listed above, CoMPlaInt InvolvEs a dEalEr
relating to the transaction that is the or InvEstMEnt advIsEr
subject of your complaint. Many disputes with securities dealers can
• Signed declaration as to truth and be directly resolved by you doing the steps
accuracy of your complaint. noted below.
What doEs thE sECurItIEs NOTE: In some cases, these recommendations
dIvIsIon do WIth My may be effective in resolving disputes with an
CoMPlaInt? investment adviser. Unless an investment ad-
Upon receipt of your complaint, the Di- viser is a member of FINRA, the arbitration
vision will consider making an inquiry procedures discussed below may not be avail-
into the matter. You should be aware that able. Additionally, smaller investment advis-
evaluation of your complaint might take ers do not have the same kind of management
several weeks. It is the Division’s policy to structure as dealers, including office managers
conduct inquiries on a confidential basis. or compliance officers.
This is done to protect the integrity of the
investigation and to protect the personal If you are unsatisfied with the response of
privacy of persons with respect to whom an investment adviser representative, con-
unfounded charges may be made. tact the investment adviser firm’s manage-
ment, but if there is none, contact the Com-
Remember, the Division does not have mission’s Securities Division.
authority to provide legal or financial
advice to investors, or to represent them notIFy your dEalEr and your
in connection with their personal rights. dEalEr’s ManaGEr:
Any actions instituted by the Division 1. Talk to your salesperson about the
with respect to alleged or purported problem.
investor c ompla ints
violations are limited to remedial and 2. Negotiate directly with your
enforcement actions seeking to prevent salesperson to resolve the matter.
further violations. Frequently, minor issues can be
settled informally at this point.
Thus, any action by the Division would not 3. If you feel the salesperson
necessarily result in any monetary benefit has answered your questions
to you. If you have suffered monetary loss, unsatisfactorily or is unwilling to
you should consider contacting a private review your complaint, contact his
attorney to discuss your legal rights and or her supervisor, as well as the
remedies under the Arizona Securities Act office manager.
or other statutes. 4. Write to the firm’s chief compliance
officer. This individual is located
If you do not have a private attorney, at the firm’s home office address.
and need help finding one, the Maricopa Request a response in writing from
County Bar Association’s Lawyer Referral the compliance officer. (You can get
Service may be consulted at 602-257-4434 the name of the compliance officer
or you may wish to contact the local Legal and the firm’s home address from
Aid Society for assistance. the salesperson’s office.)
Investments and Fraud
What arE oIl and Gas
Oil and gas investments take many forms,
including limited partnership interests,
ownership of fractional undivided interests
in leases, and general partnerships. Tax
oi l & gas in vestments
consequences and investor liability vary
according to the type of program.
In a drilling limited partnership, an oil or gas
company sells partnership units to investors
and uses the money it raises to lease property
and drill wells. In return for managing the
project, the sponsor company usually takes an
upfront fee of one’s investment (commonly
referred to as tangible and intangible drilling
costs) and also shares in a percentage of any
revenue generated. Moreover, the promoter
often offers the investor the prospect of
a substantial first year tax write-off and
quarterly cash distributions from the sale
of any oil and gas the partnership finds
until the wells run dry.
Drilling partnerships have always been invested in the venture;
a gamble. This type of investment is
very speculative and is a highly illiquid • The promoter has “hit” on every
investment with a long holding period. well drilled so far;
FraudulEnt salEs tEChnIQuEs • There has been a tremendous
Fraudulent oil and gas deals are frequently “discovery” in an adjacent field;
structured with the limited partnership (or
other legal entity) in one state, the operation • A large, reputable oil company is
and physical presence of the field in a second operating or planning to operate in
state, and the offerings made to prospective the area;
investors in states other than the initial two
states. Thus, there is less chance of an investor • Only a few interests remain to be
dropping by a well site or a nonexistent sold. Send in your money now to
company headquarters. Such a structure also reserve your interest;
makes it difficult for law enforcement officials
and victims to identify and expose the fraud. • This is a special private deal
open only to a lucky, chosen few
boIlEr rooMs & IntErnEt PItChEs investors—like you!
One of the primary ways that unscrupulous
promoters attract potential investors is InvEstor ChECKlIst: hoW to
by using the Internet and “boiler room” avoId bEInG sWIndlEd
offices with banks of phones operated by Investors wanting to make oil and gas
salespeople with little or no background investments should consider oil exploration and
in energy exploration, but plenty of producing companies that are well-established
experience in high-pressure sales. and listed on a major stock exchange.
oil & gas i nvestments
Their techniques include repeated unsolicited You can minimize the risk of being
phone calls to members of the public, hyping swindled if you resist pressures to make
the profitability of the deal. Some swindlers hurried, uninformed investment decisions.
use professionally designed brochures. Here are five critical steps to take before
Beware of unsolicited oil and gas promotions parting with your money.
on the Internet and through e-mail.
1. The Registration
Watch out for these claims: Ask if the offering is filed with the
Commission’s Securities Division or the
• You will have an interest in a well state in which the promoters are located.
that cannot miss; If so, contact the Division for any
information it may be able to provide. If
• The risks are minimal; the promoter is claiming an exemption
from registration, hire an attorney who
• A geologist has given the can determine if the exemption is valid.
salesperson a tip;
2. The Salesperson
• The salesperson has personally Ask the name of the salesperson and
for whom he or she works. Ask about fractional interest. Ask how much of
the person’s background, particularly the money will pay for advertising,
in other oil or gas ventures. Inquire salaries, sales commissions and any
about sales commissions and/or estimated profit to the company. Ask
other compensation the salesperson what type of conveyance document will
will receive. Contact the Securities be provided after any investment is made.
Division to determine if the salesperson
is registered or has been sanctioned. If the well is completed, ask what
the completion costs will be for
3. The Company each investor, including additional
Ask for the names of the principals commissions to be paid (the purpose
or the general partners offering and amount), and whether investors
the security, their backgrounds may be obligated to pay in more
and experience in the oil and gas money in the future. Ask what tax
industry, and how long they have incentive might be available if a dry-
been associated with the company. hole is encountered and for intangible
Find out the history of the company, drilling costs. Finally, evaluate the risk
its capitalization, assets and retained involved in making the investment. Is
earnings. If you do not understand the well to be drilled a wildcat (drilled
accounting, hire a certified public in territory not known to be productive)
accountant to evaluate the overall or is the drilling to be done in an area of
financial health of the company. proven oil reserves?
Find out the company’s or general 5. The Lease
partners’ history in drilling operations, Secure a legal description of the
including its years in business, the property on which the program is to
number of wells drilled, the number of be drilled. Ask for a description of
oi l & gas in vestments
wells completed as producing wells, surrounding property, including local
and whether the company retained well completions and a geologist’s
its interests in the wells it drilled. report on the area. You will want to
All the above information should be know if the lease is already in default
contained in a prospectus or “offering and whether there is any overriding
documents” that the promoter must royalty or landowner’s royalty or
furnish potential investors before they other leasehold burden being paid.
commit their funds.
Ask for a disclosure of the person(s)
4. The Investment selling the lease, the cost of the lease
Make sure investor funds are kept in a and any relationship between the
separate escrow account until used and lessor and the operator. Secure a
that they won’t be commingled with statement of the depth of the well to
other funds. Also, be certain the funds be drilled and an indication of when
will not be used for purposes other drilling is to begin. Insist on seeing
than those specified. Ask how much a copy of the operator’s contract
money is to be raised and the cost per with the promoter.
This article is based in part on information provided by:
national Association of Securities Administrators (nASAA) www.nasaa.org or call 202-737-0900
DIRECToRY oF IMPoRTAnT
American Bar Association ........................................... (800) 285-2221
Arizona Attorney General
Consumer Information ............................................ (602) 542-5763
Investigations .......................................................... (602) 542-4853
important teleph one n umb er s
Arizona Corporation Commission ............................... (602) 542-3076
Records-Corporate Status ....................................... (602) 542-3026
Bankruptcy Court ......................................................... (602) 682-4000
Better Business Bureau-Phoenix.................................. (602) 264-1721
Better Business Bureau-Tucson ................................... (520) 888-5353
Certified Financial Planners Board of Standards ......... (800) 487-1497
Commodity Futures Trading Commission ................... (202) 418-5000
Department of Economic Security ............................... (602) 542-4791
Department of Financial Institutions ........................... (602) 255-4421
Department of Insurance
General Information ................................................ (602) 364-3100
Licensing ................................................................. (602) 364-4457
Department of Mines & Mineral Resources ................ (602) 771-1600
Department of Real Estate ........................................... (602) 771-7799
Department of Revenue ............................................... (602) 716-6024
DIRECToRY oF IMPoRTAnT
Federal Bureau of Investigation-Phoenix .................... (602) 279-5511
Federal Trade Commission .......................................... (877) 382-4357
Financial Industry Regulatory Authority (FINRA)...... (202) 728-8000
Financial Planning Association .................................... (800) 282-7526
im por tant telephone numbers
Land Department ......................................................... (602) 542-4621
Maricopa County Attorney .......................................... (602) 506-3011
General information ................................................ (602) 506-3411
Investigations .......................................................... (602) 506-3844
Maricopa County Sheriff’s Office ............................... (602) 876-1000
Mine Inspector ............................................................. (602) 542-5971
National Futures Association ....................................... (800) 676-4632
Registrar of Contractors ............................................... (602) 542-1525
Secretary of State ......................................................... (602) 542-4285
State Bar Association ................................................... (602) 252-4804
U.S. Customs & Border Protection .............................. (520) 407-2300
U.S. Postal Inspection Service ..................................... (877) 876-2455
U.S. Securities & Exchange Commission
Office of Investor Education & Assistance ............. (202) 942-8090
Chairman kristin k. Mayes
Commissioner Gary Pierce
Commissioner Paul newman
Commissioner Sandra D. kennedy
Commissioner Bob Stump
Funded by a grant from the
Arizona Corporation Commission Investor Protection Trust – www.investorprotection.org