Friend: January 2020 Edition of the NC Securities Division Newsletter

January 2020

Community Calendar

The Investor Protection & Education Services Program of the NC Securities Division conducts over 100 educational outreach events all across North Carolina each year. To see if a session is scheduled near you, click the calendar below. If you are interested in scheduling an anti-fraud presentation for your church, business or organization, please email John Maron, Director of the Investor Protection & Education Services Program, at jmaron@sosnc.gov .

NCSOS Participates in Fort Bragg Expo

The NC Secretary of State's Office was among 20 state agencies, nonprofits and veterans organizations that participated in an informational fair for Fort Bragg families last week.

NCSOS Investor Education Specialist Ann Elmore discussing Agency resources with the families of deployed Fort Bragg service members.

A roundtable discussion between military families and state officials, including First Lady Kristin Cooper, created an open forum for the families of deployed service members to discuss the challenges they face, and state government resources that can help.

NC Secretary of State Investor Education Specialist Ann Elmore and Spring Lake Mayor Larry Dobbins.

Top Investor Threats to look out for in 2020

Secretary Marshall: “If a deal sounds too good to be true, keep your hand on your wallet and call us.”

Secretary of State Elaine Marshall is urging North Carolina’s investing public to resolve to do their research and keep a wary eye out for investment traps in the coming year. Marshall joined the North American Securities Administrators Association (NASAA) and other state securities regulators across the nation in announcing the top enforcement trends regulators are seeing.

Based on enforcement stats, the top five concerns for 2020 are:

· Promissory notes

· Ponzi schemes

· Real estate investments

· Cryptocurrency-related investments

· Social media/internet-based investment schemes

In addition to these, North Carolina continues to see troubling trends involving private placement offerings, variable annuities, unit investment trusts (UITs), and structured, or market-linked, CDs.

“Legitimate promissory notes are almost exclusively marketed to sophisticated or corporate investors who have the resources to thoroughly research the companies issuing the notes, so this is an area where most investors should exercise a great deal of caution,” noted Marshall.

Many investment scams also have the core elements of a Ponzi scheme, with early investors being paid ‘interest’ with money raised from later investors to build buzz about the investment's supposed success.

NCSOS was among the first state securities regulators to issue administrative enforcement orders against companies promoting cryptocurrency-related investment schemes. Keep in mind that cryptocurrency-related investment products fall under securities regulators just like any other securities investment opportunity.

“Investment crime may change with the times, but much of what we see is technology being used to repackage and promote products that at their core are the same Ponzi schemes crooks have pitched for generations,” cautioned Marshall. “In some cases folks who just want to avoid regulation are creating supposed cryptocurrency investment products. Social media can be a powerful tool to generate a false sense of legitimacy about what turns out to be a mythical investment product.”

“ Keep these scams in mind throughout 2020 as you’re considering investment decisions, but remember that the best defense against any form of investment scam is information and a healthy dose of skepticism. So if a deal sounds too good to be true, keep your hand on your wallet and call us,” advised Marshall.

Check any offer by calling the Secretary of State’s Investor Hotline at 1-800-688-4507 to make sure the person offering you the investment, and the investment itself, are properly registered or legitimately exempt.

Visit the North Carolina Secretary of State Division of Securities on the web at www.sosnc.gov for other helpful information on avoiding scams.

Protecting North Carolina's Seniors:

New Portal Aims to Ease Reporting Process for Elder Financial Exploitation

As we reported in the December 2019 newsletter, a new portal funded by a federal grant is giving regulators and the financial industry more tools to communicate and collaborate to bring more suspected cases of elder financial abuse to light.

This secure, one-stop reporting hub between financial institutions and regulators was designed to make it easier to sound the alarm when there’s suspected investment fraud targeting seniors.

The portal just got up and running last month but we're already seeing results, with the first referral coming in through the new portal, along with a separate referral that was received from Adult Protective Services.

This growing inter-agency outreach and communication has the potential to be a powerful new enforcement tool to better protect North Carolina's senior investors. We have taken additional steps to improve the process for APS offices to report cases of suspected financial fraud to our office when reports come to them from sources other than this new platform. We look forward to working with financial institutions and County Adult Protective Services agencies across the state to protect North Carolina's seniors from financial abuse and exploitation.

One Call Could Save Your Life Savings!

Is that individual offering you an investment opportunity licensed to sell securities in North Carolina? Is the investment opportunity itself registered? Know before you sign!

While registration in and of itself is no guarantee against fraud, not being registered is a very big red warning flag.

We urge you to take five minutes to call our NC Investor Hotline at 1-800-688-4507 to see if the person you have been dealing with – perhaps even for years – is properly registered and/or has a disciplinary history. You can also check to see if the actual investment itself is properly registered.

Pick up the phone and call us. You owe it to yourself and your family to check. And please also consider sharing the information in this newsletter with YOUR contacts or your social networks. Doing so will help keep your friends and loved ones safe, too. More information can be found at https://www.sosnc.gov/divisions/securities/for_investors .

NC Business Scheme Alert: Beware of Misleading Mailings Requesting Unnecessary Annual Report Fees

If your business has received a letter asking you to fill out a “2020 Annual Report Instruction Form” and pay a $90 fee to file an annual report with the NC Secretary of State’s Office, don’t fall for it!

Through a tip from one of our regulated investment adviser representatives, NCSOS has become aware of a misleading mailing that’s making the rounds. The mailing is prompting newly formed companies to submit information along with a payment of $292 to Michigan company C.P.F.S. in order to file annual reports with our Business Registration Division.

“When you receive a solicitation such as this from a business you’re unfamiliar with it’s best to ask questions before you opt to do business with them. At this point we don’t know whether the businesses that responded to this solicitation will have their forms and fees submitted to us,” cautions Secretary of State Elaine Marshall.

The fee for an LLC’s annual report in North Carolina is $200. There is an additional $2 electronic filing fee for filing your annual report online. Annual reports are simple and can be filed directly with the Secretary of State’s Office without use of a private service by visiting www.sosnc.gov . Learn more at https://www.sosnc.gov/divisions/business_registration/alerts .

Last week’s release of NC Attorney General Josh Stein’s annual report on data breaches provided a sobering outlook on cybersecurity in North Carolina. A total of 1,210 data breaches were reported in 2019, marking a record number of incidents and affecting more than a million North Carolinians. Hacking accounted for more than half of those reported breaches.

These cybersecurity concerns have been exacerbated by the heightened threat of cyberattacks from state actors. Gov. Roy Cooper has urged caution and vigilance in light of world events.

"The best way we can keep our state’s cyber systems safe and help prevent crippling attacks is to pay attention,” Gov. Cooper said. “When in doubt, do not click. Cyber criminals have many reasons for trying to beat our systems, and I encourage everyone to do their part and be sure they understand online security practices.”

Businesses use the millions of filings housed in the Secretary of State ’ s databases every minute of the day in decisions that fuel North Carolina’s economy.

The Secretary of State's Office offers a service to help companies on file with the Agency reduce their risk of being targeted for business identity theft. Identity thieves can attempt to high-jack companies' legal existence by changing their registered agents, mailing addresses, or adding their own names to the list of corporate officers.

There are procedures in place to help defeat such attempts, but the best way to avoid falling victim to business identity theft is to check your business filings regularly. We offer a subscription service that gives company officers an email notification whenever something changes on their corporate profile.

You can learn more and subscribe to this service by visiting www.sosnc.gov .

Our initiative to help participating investment adviser firms become more cybersecure is already paying dividends, as noted by one participating IA representative: “ I was going through my firm’s quarterly cybersecurity review, which is in large part a result of our meeting. I use the quarterly review as a chance to go over all software. Make sure it is up-to-date, as well as to review my checklist of risks, etc. I’m grateful for your Cybersecurity Initiative!”

News from the Regulators

SEC Investor Alert: Look Out for Coronavirus-Related Investment Scams

The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert to warn investors about investment frauds involving claims that a company’s products or services will be used to help stop the coronavirus outbreak.

The SEC's alert reminds investors that fraudsters often use the latest news developments to lure investors into scams. "We have become aware," the alert says, "of a number of Internet promotions, including on social media, claiming that the products or services of publicly-traded companies can prevent, detect, or cure coronavirus, and that the stock of these companies will dramatically increase in value as a result. The promotions often take the form of so-called 'research reports' and make predictions of a specific 'target price.' We urge investors to be wary of these promotions, and to be aware of the substantial potential for fraud at this time."