By irene maslowski
Thanks to the recent JOBS Act (Jumpstart Our Business Startups Act),
signed by President Obama last year, the Securities and Exchange
Commission (SEC) has lifted advertising restrictions for hedge funds and other
kinds of private investment offerings as of 2013, allowing for direct
solicitation to individual investors.
The goal of the JOBS Act was to make it easier for small businesses to raise money, which would create more jobs and put people back to work. As part of that act came the lifting of a 70-year old mandate where hedge funds and private equity groups could only solicit investors with whom they had a pre-existing relationship with and were prevented from advertising directly to individual consumers. Relaxing the mandate will open up the markets for any potential investment money, despite the requirement that you need to be an "accredited investor" in order to actually participate, and hedge funds and private equity groups will be able to solicit directly to potential investors of all financial standings.
So what does this mean for the consumer looking to invest? According to Cynthia Hetherington, (MLS, MSM, CFE, President of the Hetherington Group, (www.hetheringtongroup.com), a private firm specializing in intelligence, investigations and fraud, “This is unchartered territory and the key venue for solicitations is expected to be social networks. Consumers need to be mindful of the potential for investment fraud and that irresponsible and under-regulated opportunists may directly solicit the "little guy" with pipe dreams of large returns on his few thousand dollars.”
One avenue to this potentially fraudulent solicitation is called “Crowd Funding” (aka Crowd Financing), which originally began as an online way to build capital for special projects, such as raising money for a charity or artistic projects, that people in will put their money into even in small amounts. Now, it will also refer to the funding of a company by selling small amounts of equity to many investors.
The Hetherington Group offers the following tips to help protect investors from being caught in any potential fraud net:
1. Although they can advertise to consumers, bear in mind that hedge funds are required to accept only serious "accredited investors,” having at least $1 million in liquid assets, or a $200,000annual income for an individual or $300,000 for a couple. If you don’t meet the criteria you shouldn’t be participating in a hedge fund.
2. When in doubt check the broker’s background. Each broker must be registered with the Securities Exchange Commission in its state and with the Financial Industry Regulatory Authority. Visit North American Securities Administrators Association at www. nasaa.org, select the NASAA Fraud Center under Investor Education and click on "How to Check Out Your Broker or Investment Adviser.
3. Beware of offerings that seek investments immediately. Investors will be taking on a very high risk, even for legitimate solicitations since about 50 percent of all small businesses fail within the first five years.
4. Issuers using funding portals to raise money may be inexperienced. Their track records maybe unproven, unsubstantiated or outright fraudulent. Request full and complete disclosure beyond what is available on a website.
5. Crowd funding portals claiming an accreditation or "seal of approval" from a standards program or board may not be legitimate. Funding portals must be registered with the Securities and Exchange Commission (SEC), belong to a self-regulating organization (SRO), and comply with other rules the SEC may issue.
6. Social media sites are the connection point of the day. However, even friends and
families are not aware of the vulnerabilities and deceit that can occur. They may
innocently forward a link or application to try via this media and you will
inadvertently infect your computer with malware or a virus. As a user of Facebook,
Linkedin and other social networks, be absolutely vigilant about what you
necessarily need to communicate and skip all the extras that compromise your
security. More information and articles on Hedge Fund fraud and the use of social
networks to entice investors will certainly be forthcoming and will help consumers
make appropriate decisions.
“Nothing beats good old common sense when it comes to your money,” continues Hetherington. “Even though there were thousands of victims Bernard Madoff took advantage of, there were even more who considered his offer “too good to be true” and avoided the Ponzi that destroyed so many. By keeping these points in mind and consumers should remain at ease with their investment choices.”
About Cynthia Hetherington, MLS, MSM, CFE:
Cynthia Hetherington, MLS, MSM, CFE has more than 18 years of experience in research, investigations, and corporate intelligence. She is the founder of Hetherington Group, a consulting, publishing, and training firm focusing on intelligence, security, and investigations. Cynthia is also the ACFE James Baker "Speaker of the Year" Award Recipient 2012.
Cynthia applies her expertise in library science and information systems to provide clients with strategic insight into research and complex investigations. During her career, she has assisted a vast number of clients with Internet investigations related to employee theft and intellectual property loss. Cynthia has also applied her research skills while conducting online and database research to uncover well-hidden relations between fraudulent associates, their assets, and their secrets. She has experience overseeing international investigations for Fortune 500 companies and other organizations in the Middle East, Europe, and Asia.
A widely published author, Cynthia authored Business Background Investigations (2007) and the Manual to Online Public Records (2008), published by Facts on Demand Press as well as co-authoring Web of Deceit: Misinformation and Manipulation in the Age of Social Media (2012) by Information Today. She is the publisher of Data2know.com: Internet & Online Intelligence Newsletter and has authored articles on steganography, computer forensics, Internet investigations, and other security-focused monographs.
Cynthia is also recognized for providing corporate security officials; military intelligence units; and federal, state, and local agencies with training on online intelligence practices. Cynthia’s classes are ACFE, NASBA, DHS and ASIS approved for continuing professional education credits.

