What do your marketing materials say? Anything the regulators could find actionable? Maybe…?
Just last week, the Securities and Exchange Commission (SEC) announced that a self-proclaimed “stock trading whiz kid” and his stock newsletter company in Los Angeles will pay nearly $1.5 million to settle charges that they defrauded subscribers through false statements and misrepresentations.
Alias: Untutored Prodigy
According to the SEC, Manuel E. Jesus (a.k.a. Manny Backus) and his newsletter company Wealthpire Inc. published advertising materials and websites touting him as “the untutored prodigy of stock investing.” A self-purported “math whiz” who boasted a “skyscraping” IQ and training as a professional chess player, Backus claimed to be actively trading in the stock market with “real money” by age 19, and making millions of dollars, according to his marketing materials, before “deciding to help other investors” by starting an alert service that let traders copy his every trading move.
Who’s really picking the stocks?
Apparently not Backus/Jesus. The SEC alleges that from at least January 2012 to September 2014, Backus was not only not trading in the same stocks his services recommended, he wasn’t even making all of the recommendations. In fact, Wealthpire paid a completely different character, Robert C. Joiner, to make all of the stock picks for one of its alert services without any guidance from Backus. Worse yet, Joiner allegedly posed as Backus during chat room sessions, signing in using a password that Backus supplied, and then telling investors he was buying and selling recommended stocks when no such transactions occurred. (PS: Joiner also is named in the SEC’s complaint and agreed to settle the case.)
Newsletters as tools of fraud?
Possibly, according to Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “Investors who subscribe to trading alert services,” she says, “are relying on the purported expertise and success of those making the stock recommendations. But Wealthpire and Backus instead circulated repeated lies and falsehoods.” Be aware, says the SEC, that some investment newsletters are frauds, particularly those that publish false performance claims, misrepresent the track record of the newsletter’s investment recommendations, and other sins of omission.
Backus and Wealthpire agreed to pay disgorgement of $1,135,145 plus interest of $112,902, and Backus also must pay a $235,000 penalty.
Who’s minding your marketing?
The SEC isn’t the only one watching. FINRA and various state, federal, and other regulatory agencies want you to implement oversight, policies, and procedures to managing your firm’s advertising, public relations, and marketing communications processes compliantly.
Are you? Nothing could’ve saved Backus/Jesus. He was a man with a mission from which nothing could have swayed him. But not you! And not if you’ve got appropriate policies and procedures in place to streamline the regulator-required approval processes.
So, go on. Develop captivating, not fraudulent creative. Just make sure you’ve got the right solution in place. Let’s talk (212-233-1155). Ask about Patrina’s comprehensive compliance solutions and compliance recordkeeping specifically designed for the financial services community.