23 Investor Protection Flashcards
What are Ponzi or pyramid schemes?
Investment frauds that pay existing investors with funds collected from new investors without actually investing the funds as promised
These schemes rely on the recruitment of new investors to provide returns to earlier investors.
Define pump and dump schemes.
Fraudulent practices where a legitimate stock is promoted to boost its price with false or misleading information, followed by selling the securities once the price is inflated
This practice harms investors who buy at inflated prices.
What is the role of the Consumer Financial Protection Bureau (CFPB)?
Ensures banks and financial companies treat consumers fairly and enforces federal consumer financial laws
The CFPB was established in 2011 as a response to the financial crisis of 2007.
What does the Securities Investor Protection Corporation (SIPC) do?
Provides coverage for investor losses due to a brokerage firm going out of business, insuring accounts up to $500,000
The SIPC does not protect against market value loss.
What is the maximum amount SIPC covers for investor accounts?
$500,000
This coverage applies to securities registered in the investor’s name.
What is the primary goal of the U.S. Securities and Exchange Commission (SEC)?
To level the playing field for individual investors
The SEC provides resources to educate investors about avoiding scams.
What organization is a voluntary association of state securities administrators?
North American Securities Administrators Association (NASAA)
NASAA helps investors spot and avoid investment fraud.
What resources does the NASAA Fraud Center provide?
Resources to help investors spot and avoid investment fraud
The center offers educational materials and guidance.
What is the purpose of state securities regulators?
To protect clients from investment fraud and verify broker or investment advisor licenses
They also provide information on prior complaints and how to file new ones.
What was the National Fraud Information Center rebranded as in 2013?
Fraud.org
This organization collects consumer complaints and provides education and counseling.
What does the Financial Industry Regulatory Authority (FINRA) do?
Protects investors and provides investor education tools and alerts
FINRA is a not-for-profit organization authorized by Congress.
What is the Investor Protection Trust (IPT)?
A nonprofit organization providing independent, objective information for informed investing decisions
The IPT offers various educational resources for consumers.
Fill in the blank: The CFPB was established in _______.
2011
It was part of the response to the financial crisis of 2007.
