U.S. market regulators warned investors on Friday to be wary of a new type of online investment vehicle and filed civil fraud charges against a small Internet investment advisory firm called Terry’s Tips Inc.
The Securities and Exchange Commission accused Terry’s Tips, based in Vermont, and its founder Terry Allen of promising clients misleadingly large investment returns in marketing the firm’s auto-trading programs.
Auto-trading is a new investment vehicle that is spreading fast on the Internet, said Kenneth Israel, district administrator of the SEC’s Salt Lake district office.
Investors typically are asked to subscribe to online newsletters and open trading accounts at a brokerage chosen by the newsletter’s publisher. Investors are then asked to give the publisher authority to automatically direct trades in the their brokerage accounts, the SEC said.
Both the newsletter subscription and the auto-trading arrangement typically involve the investor paying fees to the publisher, the commission said.
After an account is set up, the publisher sends trading instructions by e-mail or fax to the brokerage and only tells investors about trades after they have been executed.
The SEC charged Terry’s Tips in U.S. District Court in Vermont with violating antifraud laws. The agency alleged that as recently as September 2004, the firm had 1,200 auto-trading clients with total assets of over $14 million.
“In this case, what we allege is Terry’s Tips was promising returns of about 100 percent a year when they were actually losing substantial amounts of money,” Israel said.
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