Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Wednesday, September 26, 2007

SEC Announces Initiative on Alerting Investors About Fraud

The SEC announced a new Internet-based initiative to alert investors worldwide about problems with certain unregistered entities engaged in solicitations of securities transactions. By more immediately sharing information received in complaints about particular unregistered soliciting entities, the SEC is aiming to give retail investors, before they invest, a new tool to help them avoid questionable investment solicitations, including solicitations from online boiler room and advance fee scheme operations.

Through its "Public Alert: Unregistered Soliciting Entities" (PAUSE) program, the Commission will publish on its Web site certain factual information about unregistered soliciting entities that have been the subject of complaints forwarded by investors and others around the globe, including foreign securities regulators. The Commission is seeking public comments on the PAUSE program before it begins.

To implement the PAUSE initiative, the Commission will post on its public Web site specific information about unregistered soliciting entities that have been the subject of complaints. For each of these entities, the Commission's staff will have determined either (1) that there is no U.S. registered securities firm with that name, or (2) that there is a U.S. registered securities firm with the same or similar name, but that solicitations appear to have been made by people not affiliated with the U.S. registered securities firm. A second PAUSE list will name fictitious government agencies and international organizations referred to by entities that are subjects of complaints.

Generally, entities that solicit purchases or sales of securities for the accounts of other people in the United States are required to register with the SEC. It is important for prospective investors to consider whether a soliciting entity is, in fact, registered with the SEC. A large number of investor complaints received by the Commission concern solicitations of investors by unregistered entities that appear to be involved in boiler room and secondary advance fee schemes, which, in most instances, claim a nexus to the United States, but, in truth, are located outside of the United States and target non-U.S. investors.

The comment period extends for 30 days after the Release is published in the Federal Register.

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