Internet Investment Adviser Fraud: Understanding Your Legal Rights

Businesses and individuals offering investment advice online have proliferated in recent years. These “internet investment advisers” are subject to the oversight of the U.S. Securities and Exchange Commission (SEC) and state securities regulators. However, in a recent report, the SEC disclosed that approximately half of all internet investment advisers registered with the Commission were ineligible for registration—and that their registrations had been canceled as a result. As stockbroker fraud attorney Jake Zamansky explains, this raises several concerns for investors.

In light of these concerns, the SEC has adopted new regulations that amend the registration rules for internet investment advisers. While the SEC’s new regulations still allow internet investment advisers to register with the Commission rather than registering at the state level, they impose new—and important—requirements and restrictions. For example, under the new regulations:

• To qualify for the state registration exemption and register with the SEC, an internet investment adviser must “provide investment advice to all of its clients exclusively through an ‘operational’ interactive website at all times;” and,
• The previous de minimis exemption that allowed registered internet investment advisers to provide services to a limited number of non-internet clients is no longer available.

Understanding Your Legal Rights if You Work with an Internet Investment Adviser

If you work with an internet investment adviser, what does all of this mean for you? Perhaps most importantly, it means that internet investment advisers are on the SEC’s enforcement radar. Even when an internet investment adviser is registered with the SEC, the SEC is not assuming that this means the adviser is compliant. Rather, the SEC is scrutinizing internet investment advisers’ registration eligibility, and it is canceling their registrations when they do not qualify.

The fact that the SEC has been forced to cancel nearly half of all internet investment advisers’ registrations also makes clear that compliance within this segment of the industry is a significant concern. As an investor, this should raise red flags, and it should cause you to think twice before working with a business or individual that exclusively provides investment advice online. If you choose to work with an internet investment adviser, you should do your due diligence—and you should keep close watch over your portfolio. Investment advisers who break the SEC’s registration rules often break other rules as well, and, in many cases, this leads to fraudulent investment losses.

While the SEC may be taking action, investors who fall victim to fraud need to take action too. SEC enforcement actions generally do not result in full recoveries for defrauded investors. An experienced stockbroker fraud attorney can help you understand your legal rights, and if you are a victim of fraud, your attorney can take appropriate legal action on your behalf.

Request an Appointment with a Stockbroker Fraud Attorney at Zamansky LLC

Do you have concerns about internet investment adviser fraud? If so, we encourage you to get in touch. To schedule a free consultation with a stockbroker fraud attorney at Zamansky LLC, please call 212-742-1414 or request an appointment online today.