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Arizona Securities Attorney: What Are Investors’ Rights?

Does Stock Fraud Really Happen in Arizona?

Michael and Betsy Feinberg, while living in Sedona and then Tucson, allegedly carried out a 17-year scheme in which they purportedly swindled 200 investors out of nearly $5 million. They told investors that their company, Catharon Software Corp., was poised to become the next Microsoft. In reality, the couple had no experience in the tech industry and instead allegedly used the investors’ money for their personal expenses—including a bird-watching trip to Mexico.

The fraud stemmed from the sale of unregistered securities. According to a press release from the Arizona Corporation Commission quoted in the Sedona Red Rock News, “The Commission found that the Feinbergs, formerly of Sedona, represented that they had created and owned a patented computer language technology named ‘V∆Delta’ that would enable Catharon to compete with Microsoft and other computer language systems manufacturers. While not registered to offer or sell securities in Arizona, the Feinbergs induced investors to purchase Catharon stock by repeatedly representing that Catharon would launch its technology within months of the investors’ investment, Catharon would generate $2 billion in revenue within three years and investors would receive returns of between 400 and 1,572 percent. The Commission found, however, that the Feinbergs never launched Catharon’s technology.”

On September 5, 2018, Michael and Betsy Feinberg were indicted for conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud.

While this development is troubling, it illustrates a harsh truth; even among the sun-soaked cacti of Arizona, innocent, hard-working people can fall victim to nefarious financial fraudsters.

If you’ve been the victim of securities fraud yourself, you may be seeing red—and we’re not just talking about the red canyons of the Copper State.

How Does Arizona Protect Investors?

The Securities Division of the Arizona Corporation Commission “strives to preserve the integrity of the financial marketplace through investigative actions as well as the registration and oversight of securities, securities dealers and salespersons, and investment advisers and their representatives; to enhance legitimate capital formation and deter financial fraud; and to minimize the burden and expense of regulatory compliance by legitimate business,” according to their website.

The Commission provides information on the major rules and statutes governing the securities industry in Arizona, including the Securities Act of Arizona and the Investment Management Act.

The Securities Act of Arizona governs the registration of securities, brokers, and broker-dealers. It also details how securities must be registered, and how securities can be exempt from registration.

The Investment Management Act details the licensing procedure that investment advisers must follow. It also outlines the different jurisdictions of enforcement.

The Securities Division also provides information for investors. Their Investment Resource Center provides general information about investing and how to avoid common mistakes, like falling for sales pitches that promise exorbitant returns. The website also includes more specific information that caters to diverse individuals at different life stages—adults and families, military servicemembers, the elderly, students and educators, those preparing to retire, and members of the so-called “sandwich generation,” who are raising their children while caring for their elderly parents.

To provide the public with information about brokers and broker-dealers who have been subject to regulatory actions, the Securities Division posts information about enforcement actions. For those investors who have concerns about their brokers or broker-dealer, the Securities Division provides information on how to file a complaint.

Of course, it would be best to avoid having to file a complaint by ensuring you’re never victimized by a bad broker in the first place. There are many ways to research a broker. You can check the broker’s BrokerCheck record and their Investment Adviser Public Disclosure (IAPD). The Securities Division of Arizona Corporation Commission also employs investigators to protect investors. Investors can contact the Investigator on Duty at (602) 542-0662 or SecuritiesDiv@azcc.gov.

How Can Arizona Investors Protect Themselves?

In the press release regarding Betsy and Michael Feinberg, the Arizona Corporation Commission reminded investors, “Even when selling a legitimate product, some promoters do not recognize the investment program they have created is a security. Determining whether an alternative investment program is a security is not always easy to determine and depends upon the unique facts and circumstances of the transaction and not on what a promoter calls the investment product. Even when investing with someone they know, investors should verify the registration of sellers and investment opportunities and investigate disciplinary histories by contacting the Arizona Corporation Commission’s Securities Division at 602-542-4242 or toll free in Arizona at 1-866-VERIFY-9 (837-4399).”

Investors can arm themselves with the knowledge provided by the Securities Division of the Arizona Corporation Commission’s Investor Resource Center. It’s also a good idea to always check your broker’s BrokerCheck report, which details any complaints or sanctions against the broker, plus any recent bankruptcies.

Arizona is also known as a popular destination for retirees to relax during their later years, but retirees should be wary of scams that target elderly Americans. Many financial fraudsters prey on well-educated, savvy would-be investors, and these scams can wreak financial havoc. Instead of relaxing in Scottsdale, you could find yourself knee-deep in a financial mess through no fault of your own. For more information about protecting oneself from financial abuse, check out this article entitled “How FINRA Protects Elderly Investors from Financial Exploitation.

When Might I Need an Attorney?

While the Securities Division of the Arizona Corporation Commission helps investors by overseeing and regulating stockbrokers and financial advisors who operate in Arizona, their authority is limited. They do not have the power to represent investors in lawsuits, mediations, and private arbitrations (such as those that happen before a FINRA arbitration panel). Only securities attorneys have the power to represent investors and recover funds.

Who Should I Call?

There’s no need to be hesitant about investing in the stock market, but it is important to stay informed about fraud so that you can protect yourself and your financial future.

If you fear you may have been a victim of a financial crime involving securities fraud, please contact the experienced securities attorneys of Fitapelli Kurta. Our securities fraud attorneys have worked with investors from Arizona. Whether you’re in Phoenix, Tucson, Scottsdale, Mesa, Sedona, Tempe, Chandler, Flagstaff, Glendale, or any town in between, we’re here to help you. We get only paid if you do. Our attorneys work on contingency: we only collect a fee from clients if we can recover money on their behalf. Call (877) 238-4175 or email info@fkesq.com for your free case consultation.