The SEC has filed securities charges against day trader Firas Hamdan for allegedly running a Texas securities scheme in the Houston area that defrauded investors from the Druze and Lebanese communities. Hamdan, who used to be the treasurer of the Houston branch of the American Druze Society, is known among members of both groups. He is accused of raising over $6 million from over 30 investors over five years. He allegedly claimed to run a high-frequency trading program that applied a proprietary trading algorithm.
According to the Commission, Hamdan promised investors 30% in yearly returns, while misrepresenting his trading program as being safe, when, in fact, it had suffered $1.5 million in losses. He also allegedly falsified brokerage records to hide huge trading losses and overstate assets.
When profits that were promised to investors didn’t come in, Hamdan is said to have told clients that the money got entangled in the MF Global debacle and the debt crisis in Greece. He also is accused of lying about a nonexistent cash reserve account and a supposed $5 million “key-man” insurance policy that made clients’ investments secure.
Affinity Fraud
Texas affinity fraud is typical an investment scheme that targets members of a group that usually consists of people belonging to the same race, religion, age, ethnicity, community or or some other affiliation. Often, the fraudster is someone who belongs to the group, is a friend/associate of one or more members, or has has some other “in” that causes them to feel like they can trust this person with their money.
For example, Hamdan was an ex-officer of the American Druze Society. He solicited investors by talking to family and friends in the Druze and Lebanese communities. He also asked those that signed with him to talk to their friends about investing.
SEC Tips on Avoiding Affinity Fraud:
• Even if you know/trust the person bringing you the investment opportunity, make sure you do your own due diligence to make sure this isn’t a scam. The person trying to bring you into the deal may not even know that he/she too is also being fooled.
• Don’t invest in anything that promises “guaranteed” returns or massive profits. “Too good to be true” investments are exactly just that: too good to be true.
• Make sure the investment opportunity is spelled out in writing.
• Don’t feel pressured into investing in an “opportunity” out of fear that it won’t be there if you don’t join up now.
• Watch out from unsolicited e-mails from strangers touting investment opportunities.
SEC Charges Trader in Houston-Area Investment Scheme Targeting Lebanese and Druze Communities, SEC, January 29, 2013
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