What You Can Do To Avoid Investment Scams
As briefly mentioned in our previous posts, Sethi is no stranger to securities enforcement action. In 2010, Sethi and his company Sethi Oil & Gas, Inc. were permanently enjoined from offering or selling any unregistered securities or investments in the State of Colorado. According to the complaint filed by the Securities Commissioner for the State of Colorado, Sethi engaged in a “persistent pattern of fraudulently offering to sell unregistered securities to Colorado investors,” even after receiving a cease and desist order. Moreover, Sethi failed to disclose the nature of the compensation to the defendants and the prior felony conviction of the company’s sales agent, which resulted in the sales agent’s statutory disqualification by FINRA from being licensed as a securities broker or sales representative. The complaint further alleged that the defendants had previously been disciplined for their offers and sales of unregistered securities throughout the United States, including a cease and desist order issued by the Pennsylvania Securities Commission in 2006.
While an investment scam like this would not be easy to detect, this case should serve as a reminder of the importance of due diligence investigation. Although information about smaller, non-reporting companies is not always available on the SEC website, even a quick search on the Internet would have revealed the prior enforcement action against Sethi. Potential investors can also check with their state securities regulator to see if it has more information about a particular company and the people behind it. With respect to investment advisors and brokers, the SEC recommends using free online databases, including the SEC’s Investment Advisor Public Disclosure website and the FINRA’s BrokerCheck, to make sure they are properly licensed to sell securities and do not have any history of complaints with regulators or other investors. Additionally, the SEC urges investors to be wary of unsolicited offers, especially when the investor can find no current financial information about the company from other independent sources. FINRA’s website also lists certain red flags of fraud and features Scam Meter to help investors determine whether an investment they are thinking about might be a scam.
This post is a part of a multi-post blog series on the SEC’s recent enforcement action against Sethi Petroleum LLC and how to avoid investment scams. You can find the other post by searching our blogs at www.mcbrideattorneys.com. If you have any questions about the content of this blog series or other securities law issues not discussed here, please contact us.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
About the Author
So-Eun Lee – So-Eun Lee is an associate attorney in the New York office of The R. Shawn McBride Law Office, P.L.L.C. She concentrates her practice on business law. So-Eun can be contacted at: (347) 921-0173 or email@example.com. Her profile is available on www.mcbrideattorneys.com.
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C. which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: (214) 418-0258; firstname.lastname@example.org, or www.mcbrideattorneys.com.
 See generally Secs. Comm’r for the State of Col. v. Sethi, Case No. 10CV739 (May 27, 2010), Order of Permanent Injunction and Other Relief Against Sameer Sethi and Sethi Oil & Gas, Inc.
 Secs. Comm’r for the State of Col. V. Sethi, Complaint for Injunctive and Other Relief, ¶ 3.
 Id. ¶ 4.
 Id. ¶ 11.
 SEC, Investment Adviser Search, http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspx (last visited June 8, 2015).
 FINRA, Broker check, http://brokercheck.finra.org/ (last visited June 8, 2015).
 SEC, Investor Publications: How To Avoid Fraud, http://www.sec.gov/investor/pubs/avoidfraud.htm (last visited May 27, 2015).
 FINRA, Red Flags of Fraud, http://www.finra.org/investors/red-flags-fraud (last visited June 8, 2015).
 FINRA, Scam Meter, http://apps.finra.org/meters/1/scammeter.aspx (last visited June 8, 2015).