Rust, the unregistered advisor who swindled investors out of more than $220 million, told his victims his bogus Ponzi scheme averaged 20% to 25% annually and never less than 12%.
“Watch out for guaranteed high returns,” the SEC said in the alert. “Promises of high returns with little or no risk are classic warning signs of fraud. Every investment carries some degree of risk, and the potential for greater returns usually means greater risk. Ignore so-called “can’t miss” and “guaranteed risk-free” investment opportunities –even if they involve HoweyCoins [the enticing imaginary bitcoin investment the SEC created as a cautionary investor tool]! Better yet, report them to the SEC.
Rust’s firm also didn't provide investors with third-party investment performance statements, such as those that are sent by advisory or brokerage firms on bona fide accounts. Instead, Rust created spreadsheets showing purported transactions himself and sent them to investors.
The SEC also used the alert to caution investors against the costs of active trading and high fees.
“Know how to be a better investor,” the SEC said. “Did you know that active trading and some other very common investing behaviors actually can undermine investment performance? According to researchers, other common investing mistakes include focusing on past performance, favoring investments from your own country, region, state, or company, and holding on to losing investments too long and selling winning investments too soon.”
The agency also wants investors to focus on the impact fees have on their investment performance. “It can be costly to ignore fees associated with buying, owning, and selling an investment product. Expenses vary from product to product, and even small differences in costs can mean large differences in earnings over time. An investment with high costs must perform better than a low-cost investment to generate the same return.
With the heightened interest and trading in initial coin offerings and agency enforcement against unregistered ICOs, the SEC directed investors to check on the registration of any securities
“Any offer or sale of securities must be either registered with the SEC or exempt from registration. Otherwise, it is illegal. This has taken heightened importance with the advent of initial coin offerings as many of these offerings may involve securities.
“Registration is important because it provides investors access to key information about the company’s management, products, services, and finances. Always check whether an offering is registered with the SEC by using the SEC’s EDGAR database or contacting the SEC’s toll-free investor assistance line at (800) 732-0330,” the alert said.