Kenneth Thom, who went by the flashy online names "K$" and "K Money," allegedly used social media to build a following and deceive hundreds of people out of nearly $800,000. This story is a classic example of how someone can leverage the illusion of success to commit serious financial crimes.
It's a cautionary tale about the dangers of trusting online "experts" without doing your homework.
The Deception: A 'Wall Street Veteran' on Facebook
Before his social media fame, Thom had been suspended as a stockbroker by a regulatory body called FINRA. This was because he'd lost an investor's money, mixed it with his own, and then lied to the investor about it. Instead of cleaning up his act, he took to Facebook, presenting himself as a "Wall Street veteran" and a trading "luminary" to his followers. He sold trading courses and advice, building a community he eventually convinced to hand over their money for "shared accounts."
He promised to manage these accounts and share the profits. But instead of investing all the money, he allegedly took a big chunk—nearly $450,000—for himself, spending it on things like luxury goods and travel. Of the money he did invest, he lost most of it—over 73%—in risky options trading.
To keep the scam going, Thom allegedly posted fake updates showing huge profits, pretending the accounts were thriving. This all came to a head when his Facebook group name was suddenly changed to "AYBABTU" (an acronym for the Internet meme "all your base are belong to us"), and Thom stopped communicating with his clients, leaving them in the dark about their stolen money.
The Law: Securities Fraud and Investment Adviser Fraud
This case involves two serious charges: securities fraud and investment adviser fraud.
Securities fraud is a broad term for deceptive practices that manipulate investors into making decisions based on false information. In Thom's case, this includes allegedly lying about his trading performance and creating a false sense of success to get people to invest. It's about using lies to trick people into buying or selling investments, causing them to lose money.
Investment adviser fraud is committed when a financial professional, like an investment adviser, knowingly engages in illegal or deceitful activities to exploit investors. Thom, despite not being a registered adviser, acted as one when he managed his followers' money. By taking their funds for personal use and lying about his trading results, he allegedly violated the trust he built with them, putting his own interests ahead of his clients'.
The Role of Blue Sky Laws
In addition to the federal charges brought by the U.S. Attorney's Office, state securities laws, often called "blue sky laws," likely play a significant role in this case. The term "blue sky" comes from an early 20th-century court case where a judge referred to a fraudulent investment as having no more substance than "so many feet of blue sky." These laws are designed to protect the public from speculative schemes and fraud at the state level.
While federal laws like the Securities Exchange Act of 1934 cover a wide range of securities fraud, blue sky laws act as an important safety net. Here's how they could apply to Thom's case:
Registration and Licensing: Blue sky laws require that people who sell or offer securities and give investment advice within a state are properly registered and licensed. Thom, having been suspended by FINRA, was not in good standing. This likely means he was not registered with the states where his followers resided, which is a direct violation of these laws.
Anti-Fraud Provisions: Just like federal law, blue sky laws contain their own anti-fraud provisions. These provisions make it illegal to make false or misleading statements in connection with the sale of a security. The fake performance updates Thom posted on Facebook to hide his trading losses would be a clear violation of these state-level anti-fraud rules.
Private Lawsuits: Blue sky laws often provide a direct path for individual investors to sue the person who defrauded them to get their money back. So, in addition to facing criminal charges from the federal government, Thom could also face civil lawsuits from his approximately 67 clients, who could use the state's blue sky laws to hold him accountable.
Ultimately, both federal and state laws work together to protect investors. While the federal case handles the criminal charges, state-level blue sky laws can provide additional avenues for legal action and restitution for the victims.
How to Protect Yourself from Investment Scams
Thom's story is a stark reminder to be vigilant with your money. Here are a few key takeaways to help you avoid similar scams:
Check Credentials: Always verify the background of anyone offering investment advice. You can use free online tools provided by organizations like FINRA and the SEC to see if a person or firm is properly registered and licensed. Unregistered individuals are often a major red flag.
Be Wary of Promises: If an investment opportunity promises unusually high returns with little to no risk, it's probably too good to be true. Legitimate investments always carry some level of risk.
Resist Pressure: Scammers often use high-pressure tactics to get you to act quickly. A trustworthy professional will give you plenty of time to review information and make a decision without rushing you.
Do Your Own Research: Don't rely solely on what you see on social media or in an email. Conduct independent research, read all the legal documents, and seek advice from a trusted, independent financial professional before you invest.
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