The Financial Industry Regulatory Authority (FINRA) announced on April 11, 2013 that it has filed a Temporary Cease-and-Desist Order (TCDO) to stop Washington, D.C.-based Success Trade Securities, Inc. and its CEO & President, Fuad Ahmed. FINRA has accused Success Trade Securities and Ahmed of fraud related to sales of promissory notes issued by the firm's parent company, Success Trade, Inc. This is yet another in a continuing string of purported investment fraud in the securities brokerage industry.
Success Trade Securities is an online broker-dealer that operates through Just2Trade and LowTrades. FINRA alleges that Success Trade Securities, Ahmed and other brokers sold more than $18 million in Success Trade promissory notes to 58 investors, many of whom are current or former NFL and NBA players, while misrepresenting or omitting material facts. FINRA alleges that Ahmed and Success Trade Securities misrepresented that they were raising $5 million through the sale of promissory notes, even as they sold millions of dollars more than that. Most of the notes promised an 12.5 percent annual interest rate, with some notes promising to pay interest as high as 26 percent.
FINRA alleges that Ahmed and Success Trade Securities failed to disclose that they were unable to make future interest payments without raising money from new investors. In addition, FINRA charges Ahmed and Success Trade Securities with misrepresenting how investors' money would be used, instead improperly using the funds to make unsecured loans to Ahmed and to make interest payments to existing noteholders. Using new investors' money to pay "investment returns" or interest to earlier investors is a classic Ponzi scheme. FINRA further alleges that Ahmed and Success Trade Securities misrepresented the rate of return and exempt status of the private placement offering through which the notes were sold.
While there is no excuse for lying to investors or defrauding them, investors need to be especially cautious and suspicious when they are promised interest rates that are substantially higher than prevailing market interest rates. Such promises often are the tell-tale sign of investment fraud. If it sounds too good to be true, it usually is.