Securities Law Blog

PAUSE: The SEC Lists Pages and Pages of Unregistered Soliciting Entities to Warn the Public

The SEC publishes 51 pages of unregistered soliciting entities that have been the subject of a variety of investor complaints.

A number of years ago the SEC began quietly posting on its website, under the caption “Public Alert: Unregistered Soliciting Entities (PAUSE),” the names, addresses and additional relevant information about entities soliciting investors that falsely claim to be registered in the United States with the SEC, entities impersonating genuine U.S. registered securities firms and entities falsely claiming affiliation with government agencies or international organizations. In an effort to warn the public about these entities, the SEC maintains and regularly updates the PAUSE list with additional information that the SEC learns from its investigations. The list appears to be expanding with each periodic release, and the SEC seems to be increasingly publicizing it.

The SEC’s Office of Investor Education and Advocacy receives a variety of complaints from investors and others about questionable securities solicitations. Below is a list of the three most common complaints:

• Unregistered Soliciting Entities. Securities solicitations made by entities that claim to be registered, licensed and/or located in the United States in their solicitation of non-U.S. investors, and entities not registered in the United States that are soliciting U.S. investors. In some cases, the complaints are about entities claiming to offer investments endorsed by governmental agencies, including the SEC. In many cases, the SEC investigation reveals that the soliciting entities are not, in fact, registered in the United States as they claim or imply. For each of the entities named on the PAUSE list, the SEC has determined that there is no U.S. registered securities firm with this name.
• Impersonators of Genuine Firms. Securities solicitations made by entities using a name that is the same as, or similar to, the name of a U.S. registered securities firm, investment advisor, transfer agent, issuer, hedge fund or institutional investor. In many cases, the SEC investigation reveals that these entities have wrongfully appropriated the registration numbers and address information of the legitimate firms from publicly available databases such as EDGAR and FINRA’s BrokerCheck, and set up phony websites in order to confuse and deceive investors. In other cases, these “spoofer” entities have appropriated the registration information of legitimate firms that recently terminated their registration with the SEC and FINRA or did so years ago. Similarly, representatives of the impersonating entities who cold call investors often claim to be licensed employees of the legitimate firms being impersonated or of other legitimate firms. The SEC has determined that the impersonators on the PAUSE list are not affiliated and have no connection with, and are not to be confused with, the genuine U.S. registered securities firms, whether active or defunct.
• Fictitious Regulators. Securities solicitations made by entities claiming to offer investments endorsed, approved or otherwise supported by governmental agencies, including the SEC, or international organizations. The SEC does not “approve” or “endorse” any particular securities, issuers, products, services, professional credentials, firms or individuals, and does not allow private entities to use its governmental seal. In many cases, the SEC investigation reveals that the so-called governmental agencies or international organizations on the PAUSE list that are claimed to have lent support to these solicitations do not exist or do not really lend support to the entity or the investments it is offering.

More recently, we understand the investor complaints increasingly involve “advanced fee fraud.” Apparently, soliciting entities in the United States contact foreign holders of worthless U.S. securities and offer them a premium price to purchase their securities or offer to assist them in removing the restrictive legend from their securities, in each case after an advanced fee is paid by the unwitting foreign investor. After the fee is paid, however, the soliciting entity can no longer be found or additional payments are demanded before the entity disappears.

We also understand that the contact information for the soliciting entities on the PAUSE list may not necessarily be, in fact, true; rather, the list includes the contact information given by the fraudulent soliciting entities. In these cases, often the soliciting entities are located in foreign jurisdictions where there is lax enforcement over such activities. The SEC’s Office of International Affairs is tasked with working with foreign securities regulators on these matters.

The PAUSE web page states that the inclusion of a name on the list does not mean that the SEC has concluded a violation of the U.S. securities laws has occurred. There is also no indication on the site that the SEC has contacted the named soliciting entity, conducted any particular standard of investigation or given the entity an opportunity to respond prior to being placed on the list. Nonetheless, it is well worth taking a look at the PAUSE list for the name of any unknown broker who might contact you.