Securities Trading Advisor Settles FTC Charges

The promoter of a day-trading system who allegedly used unsubstantiated earnings claims and misleading testimonials to sell his trading system to prospective day traders has agreed to settle Federal Trade Commission charges that his marketing practices violated federal law. The settlement will bar unsubstantiated financial benefits claims, require that testimonials reflect the typical experience of investors, and require disclosure that there are risks of loss in securities trading.

In March 2001, the FTC filed a complaint charging Timothy Cho and the Tim Cho Investment Corporation (TCI) with violating the FTC Act by deceptively marketing their day- trading system. The FTC alleged that Cho and TCI advertised for a $6,000 two-day training seminar on day-trading and other techniques for trading stocks, currencies and futures contracts. The FTC alleged that the defendants made unsubstantiated claims that by using their techniques, investors reasonably could expect to achieve substantial profits, including claims that they could earn 18 percent per trade; that 12 out of every 13 trades would be profitable; and that they could earn six to seven figures annually. The FTC alleged that the defendants lacked substantiation for these claims and that they were deceptive. The ads also conveyed that investors could expect to trade profitably with little financial risk, the FTC alleged. In fact, the FTC complaint says, investors cannot reasonably expect to trade with little financial risk, and the claim is, therefore, deceptive. The settlement announced today ends that litigation.

The settlement bars the defendants from making claims about the financial benefits of their day-trading investment system without a reasonable basis for the claims. It bars consumer testimonials unless they are truthful and either reflect the typical experiences of the defendants' customers or disclose what the typical experiences of those consumers actually are. The settlement also prohibits the defendants from misrepresenting the benefits of the TCI trading system, including the risk of using the system. In addition, the settlement requires that the defendants make certain specific disclosures regarding the risk of loss in securities trading and that hypothetical results do not correspond to real profits. The settlement also contains record-keeping requirements to allow the FTC to monitor the defendants' compliance. Based on financial statements provided by the defendants, they will not be required to pay consumer redress.

The Commission vote to accept the stipulated final judgment and order was 5-0. It was filed in the U. S. District Court for the Central District of California, Southern Division, in Santa Ana. The FTC staff received invaluable assistance on this case from the Massachusetts Securities Division and the Western Region of the Commodity Futures Trading Commission.

(Civil Action No. SACV 01-331 DOC (MLGx))