No CUs Appear Impacted by `Misleading' Online Investment Program, SEC Says

WASHINGTON – It appears that no credit unions have been affected by a Vermont corporation and its “misleading” auto-trading programs, according to an SEC official. On July 1, the SEC filed civil charges against Terry’s Tips, Inc., a Vermont corporation, and Terry F. Allen, of Ferrisburg, Vt., for alleged violations of using misleading performance projections in marketing the auto-trading programs to clients. Auto-trading is a relatively new, but rapidly spreading, investment vehicle in which subscribers to online investment newsletters open designated auto-trading accounts at brokerage firms selected by the newsletters, the SEC said. The auto-trading clients sign an agreement with the brokerage firm giving the online adviser authority to automatically direct trades in the client’s personal brokerage account. The services are typically offered as an additional service provided by publishers of online financial newsletters, which require subscribers to pay a fee to auto-trade in addition to the subscription fee paid to receive the general newsletter. Once the brokerage account is established, the online adviser sends specific trading instructions directly by e-mail or facsimile to the broker-dealer. These instructions are timed to take advantage of market events, and the client learns of the trades only after they have been executed by the broker. “There is no indication that credit unions were involved, just individuals,” said Ken Israel, district administrator for the SEC’s Salt Lake District Office. The SEC complaint filed in the District of Vermont alleges that Terry’s Tips and Allen have had more than 1,200 clients who have invested through its auto-trading programs. The complaint also charges that Terry’s Tips and Allen published performance projections in which they stated subscribers could expect annualized returns of 100% by following Allen’s trading strategies, while at the same time portfolios following these strategies were actually experiencing substantial losses. “The filing of this case illustrates once again that an investor should exercise care and appropriate skepticism before giving another person authority to direct trading in his account, particularly where that person claims to provide unrealistically high returns to the investor,” Israel said. The SEC is seeking permanent injunctive relief, disgorgement of illegal profits with prejudgment interest and civil monetary penalties based on violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 there under and violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The State of Vermont Department of Banking, Insurance, Securities and Health Care Administration assisted in the investigation, the SEC said. [email protected]