From the December 01, 2009 issue of Futures Magazine • Subscribe!

How to avoid investment fraud

Investment fraud is a billion dollar business. These days, it seems every time you turn around, some scheme is being unearthed. Not surprisingly, many of these are simply variations on fraudulent techniques that have been successful in the past. As they say, everything old is new again.

The battle against investment fraud has been waging for decades. Enforcement organizations have worked very hard to create tools that can help you recognize and avoid fraud. We’ll look at those in a bit. But first, let’s review the things you should watch out for when considering any investment (see “Signs of fraud” ).

You can avoid becoming a victim of such practices by following some simple guidelines (see “Avoid being victimized”).

If you’re thinking about getting involved in the futures market, begin your investigation, whether you’re checking out a broker or a firm, with the Background Affiliation Status Information Center (BASIC), a service offered by National Futures
Association (NFA).

BASIC includes registration and disciplinary information for all current and former Commodity Futures Trading Commission (CFTC) registrants (150,000 individuals and 10,000 firms). It has name, business address and futures registration history, details about disciplinary actions taken by NFA, the CFTC and all of the U.S. futures exchanges, details about NFA arbitration matters, if a case went to hearing and an award was issued after Jan. 1, 1990 and summary data about any cases filed with the CFTC’s reparations program. All of the information is available online.

NFA registration, disciplinary and arbitration information is taken from NFA’s proprietary systems. The exchanges and CFTC submit their respective information to NFA for inclusion in BASIC.

BASIC does not contain information about civil actions, criminal proceedings or actions taken by other federal regulatory agencies or self-regulatory organizations, information about pending arbitration cases or cases without an award, regulatory actions taken by exchanges prior to 1990 or pending exchange complaints that haven’t been adjudicated.

When you search BASIC for individuals, be sure to look at their employment history, as well as the history of the firms they worked for. Likewise, if you’re searching a futures firm, be certain to check out the background of any of the principals listed for the firm, as they may have had a disciplinary issue while employed at a previous firm.

You can search BASIC 24/7 at, or call NFA’s Information Center at (800) 621-3570, Monday through Friday, between 8 a.m. and 5 p.m. CT.

CFTC reparations are mentioned in BASIC. However, details about CFTC Reparations Sanctions in Effect are found under the Customer Protection tab on the CFTC’s Web site at These are sanctions that have been taken against individuals and firms who have not paid awards levied against them in CFTC reparations proceedings. The time period covered is 1984 to present.

These sanctions remain in effect until the individual or firm submits proof that the amount required by the final reparations award, or an alternative agreed upon settlement, has been paid. If an award is unpaid, the registration of the firm or individual is suspended, which means they are prohibited from trading on any contract market.

Available data includes name, CFTC Docket number, NFA ID number, judgment amount, effective date, interest paid, etc. (Reparations Sanctions in Effect for the period 1975-1983 also are available, but only in list form.)

If you need help or have questions about specific Sanctions or Respondents, contact the CFTC Office of Proceedings by e-mail at or telephone at (202) 418-5508.

Another CFTC source is the Administrative Sanctions in Effect list. Administrative Sanctions in Effect are registration and trading sanctions in effect as a result of administrative enforcement or statutory disqualification proceedings.

Available data includes name, CFTC Docket number, NFA ID number and a description that contains the effective date of the sanction and a brief explanation of the outcome. The time period covered is from 1975 through the present.

Again, for assistance or questions about specific Sanctions or Respondents, contact the CFTC Office of Proceedings by e-mail or telephone at 202-418-5508.

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