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Corporation Commission Announces Top Investor Threats for 2022

PHOENIX — The Corporation Commission released today an annual list of top investor threats and urged caution before purchasing popular and volatile unregulated investments—especially those involving cryptocurrency and digital assets.  Also, the Commission announced guidance for investors, including steps to take to reduce the possibility of becoming a fraud victim in the new year.  

“The Corporation Commission’s Securities Division informs us that investments related to cryptocurrencies and digital assets is our top investor threat in Arizona,” said Chairwoman Márquez-Peterson. “Stories of ‘crypto millionaires’ enticed many investors to delve into cryptocurrencies or crypto-related investments last year, and with that, many stories of those who bet big and lost big began appearing, and we anticipate they will continue to appear in 2022.”

The top 2022 threats to investors were determined by a survey of securities regulators conducted by the North American Securities Administrators Association (NASAA). The annual survey is designed to identify the most problematic products, practices or schemes facing investors. The following were cited most often by state and provincial securities regulators:

  1. Investments tied to cryptocurrencies and digital assets,
  2. Fraud offerings related to promissory notes,
  3. Money scams offered through social media and internet investment offers and,
  4. Financial schemes connected to self-directed Individual Retirement Accounts (IRAs).

Many of the fraud threats facing investors today involve private offerings, as federal law exempts these securities from registration requirements and preempts states from enforcing important investor protection laws. Unregistered private offerings are generally considered to be high-risk investments and do not have the same investor protection requirements as those sold through public markets.

The Commission urges investors are to practice the following tips to identify and avoid investment scams:

  1. Anyone can be anyone on the Internet. Scammers are spoofing websites and using fake social media accounts to obscure their identities. Investors should always take steps to identify phony accounts by looking closely at content, analyzing dates of inception and considering the quality of engagement. To ensure investors do not accidently deal with an imposter firm, pay careful attention to domain names and learn more about how to protect your online accounts.
  2. Beware of fake client reviews. Scammers often reference or publish positive, yet bogus testimonials purportedly drafted by satisfied customers. These testimonials create the appearance the promoter is reliable – he or she has already earned significant profits in the past, and new investors can reap the same financial benefits as prior investors. In many cases, though, the reviews are drafted not by a satisfied customer but by the scammer. Learn how to protect yourself with NASAA’s Informed Investor Advisory on social media, online trading and investing.

  3. If it sounds too good to be true, it probably is. Bad actors often entice new investors by promising the payment of safe, lucrative, guaranteed returns over relatively short terms – sometimes measured in hours or days instead of months or years. These representations are often a red flag for fraud, as all investments carry some degree of risk, and the potential profits are typically correlated with the degree of risk. Learn more about the warning signs of investment fraud

The Corporation Commission recommends investors independently research the registration of investment firms and avoid the hyperlinks provided by the investment promoters.  Instead, investors should contact the Investigator on duty at the Securities Division, search the SEC’s Investment Adviser Public Disclosure website or FINRA’s BrokerCheck platform. Investors should be aware that scammers may misappropriate the CRD numbers of registered firms and individuals.

Bad actors may also impersonate licensed securities dealers or salesman by using phony websites that place viruses or malicious software on victim’s computers. Investors should continue to observe best practices for cybersecurity. The Federal Deposit Insurance Corporation (FDIC) has issued guidance to assist consumers in protecting themselves from cyber-attacks.

By Arizona securities law, individuals offering investments are obligated to truthfully disclose all material facts, including the risks associated with the investment. Fraudsters or unscrupulous investment professionals typically minimize or conceal the financial risks, using hyperbole to tout profits and payouts. Investors should pay attention to these red flags as they can provide clues about the potential illegitimacy of the investment opportunity.

The Corporation Commission’s Securities Division offers a wealth of free investor education materials through its website, www.azcc.gov/azinvestor or at the Spanish version,  www.azcc.gov.azinversor.  Access to securities investigators who can help investors research the background of those selling or advising the purchase of an investment is available. The Investigator on Duty can be reached by telephone at 602-542-0662 or toll free in Arizona at 1-866-837-4399 or by email, SecuritiesDiv@azcc.gov.

August 7, 2019
Idaho Man and his Company Sold Unregistered Promissory Notes

The Corporation Commission ordered Roland B. Woolsey of Idaho and his affiliated company, Skytrace, Inc., to pay $142,500 in restitution and $10,000 in administrative penalties for offering and selling unregistered promissory notes. Woolsey and Skytrace, Inc. were seeking to raise $10 million in order to market a web-based inventory application but are not registered to offer or sell securities in Arizona.

In settling this matter, the respondents neither admit nor deny the Commission’s findings, but agree to the entry of the consent order. All documents relating to this agenda item can be found in the Corporation Commission's online docket at https://edocket.azcc.gov and entering docket number S-21055A-18-0309.

July 11, 2019
Commission Finds Phoenix Man Defrauded Hispanic Christians with Promissory Notes

The Corporation Commission ordered Jaime A. Verdugo of Phoenix to pay $381,954 in restitution and a $20,000 administrative penalty for committing securities fraud. The Commission found Mr. Verdugo was not registered to offer or sell securities in Arizona when he solicited multiple promissory note investors, most of whom were from Hispanic Christian communities. The Commission found Jaime A. Verdugo told investors, on behalf of Verdugo Enterprises, LLC, that their money was going to purchase home decor products to fulfill online orders.However, the Commission found Mr. Verdugo mislead investors by stating their money was safe while knowing at least eight prior investors did not receive any investment returns. Also, the Commission found Jaime A. Verdugo failed to inform investors about the company’s unwritten policy to limit payouts to $6,000 every two weeks, which is contrary to the explicit terms of the promissory notes.

All documents relating to this agenda item can be found in the Corporation Commission's online docket at https://edocket.azcc.gov and entering docket number S-21064A-18-0402.

June 11, 2019
Commissioners sanction Laveen man for unlawful sale of securities

The Corporation Commission ordered Carlton Lamont Fox of Laveen, Arizona, and his affiliated company to pay $15,200 in restitution and a $5,000 administrative penalty for participating in the unlawful offer and sale of unregistered securities while not being registered as an Arizona securities salesman or dealer. The Commission found at least 17 investors were promised a return on their initial investment within 3-6 months, funding either the purchase of leads for prospective businesses that were interested in credit card reader terminals or for the purchase of the terminals that would be subsequently sold to interested businesses. The Commission found that Fox and his affiliated company, Fox First Services, LLC, participated in the unlawful sale of securities as an unregistered salesperson or dealer. Further, the Commission found that none of the investors received a full return of their original investment, and that Fox used some of the money to pay telemarketers for their work in soliciting investor funds. In settling this matter, respondents neither admitted nor denied the Commission findings, but agreed to the entry of the Commission's consent order.

All documents relating to this agenda item can be found in the Corporation Commission's online docket at https://edocket.azcc.gov and entering docket number S-21059A-18-0345.

June 11, 2019
Commissioners order more than $2 million in restitution to restore investors

Arizona resident Adam W. Child agreed to pay $2,014,592 in restitution and a $25,000 administrative penalty for selling promissory notes and LLC membership interests to investors. The Corporation Commission found that Child offered and sold notes and membership interests to at least 17 investors of Titan Funding Group I, LLC and Titan Capital Real Estate Fund I, LLC. The Commission found the investor funds were pooled to lend money to real estate developers who were to purchase and "flip" residential properties. However, the Commission found that Mr. Child violated the Securities Act's antifraud provisions when he failed to disclose to investors a previous judgment against him, that he had declared bankruptcy and that his prior mortgage-lending business had its license revoked.

In settling this matter, the respondent agreed to the entry of the consent order and admitted to the Commission's findings only for purposes of the administrative proceeding. All documents relating to this agenda item can be found in the Corporation Commission's online docket at https://edocket.azcc.gov and entering docket number S-21054A-18-0301.

May 15, 2019 
Densco Investment Corporation Investors to Receive Additional Restitution 

Last week, investors of DenSco Investment Corporation were awarded a second monetary distribution for losses incurred as a result of their investment in a fraudulent company. On May 10, 2018, Maricopa County Superior Court approved the receiver’s motion to provide a second distribution in the amount of $2.5 million to DenSco Investment Corporation investors. This comes on the heels of a decision by the court in December 2017 where the receiver’s first motion was approved and $4.5 million was distributed to investors.

DenSco Investment Corporation was a real estate investment firm based in Chandler, Arizona that ceased doing business in 2016. The company was obtaining loans against hundreds of properties that were never actually purchased. As a result of this fraud, action was brought against the company by the Arizona Corporation Commission for violations of the Arizona Securities Act. Due to the death of the sole owner of the corporation, a receiver was appointed by the court in 2016. A receiver is a person appointed by the court to take possession and charge of designated assets or property and to administer them in accordance with court directives.

To date, DenSco Investment Corporation investors have been awarded roughly $7 million in distributions approved by the court. The receiver continues to recover assets and claims on behalf of the receivership and believes that more funds will be available for distribution at a later date.

                                                                     

 

Arizona Corporation Commission

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