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The North American Securities Administrators Association ("NASAA") shared several current and emerging investment threats identified by state regulators and the NASAA Enforcement Section.
Based on a survey of state securities regulators, NASAA revealed that promissory notes are the leading source of investor complaints. NASAA President Joseph Borg warned average investors to proceed with caution when dealing with offers of promissory notes with a duration of nine months or less. He stated that short-term promissory note offerings, which may appear to be exempt from securities registration, are often the source of fraudulent activity. NASAA also shared several other common sources of investor complaints including: (i) real estate investments, (ii) Ponzi/pyramid schemes, (iii) oil- and gas-related investments, (iv) affinity fraud, and (v) variable annuity sales practices.
The NASAA Enforcement Section anticipates the following emerging threats in the coming year: (i) initial coin offerings, (ii) identity theft for the purpose of depleting seniors' investment accounts, and (iii) cryptocurrency contracts for difference ("CFDs"), which allow investors to speculate on the price of an underlying asset, and can be highly leveraged. (NASAA noted that CFDs are prohibited from being sold to U.S. citizens or residents.)
Commentary / Steven Lofchie
The NASAA concern about CFDs should be reviewed. A CFD is either a futures contract or a swap. Futures contracts on foreign exchanges can be sold through CFTC-registered FCMs (but not through unregulated telemarketers). Similarly, swaps can be sold, but not to retail investors, and only subject to the CEA requirements.
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