New SEC commissioner talks shop: Isaac Hunt Jr. shares his views on how to safeguard yourself from securities fraud.

You might find it hard to believe but the government has your back when it comes to malpractice by stockbrokers and mutual fund managers. In fact, that was the reason behind the Securities Exchange Act of 1933, which created the U.S. Securities and Exchange Commission. This body of five commissioners, appointed by the President on a five-year rotating basis, is responsible for administering congressional acts regarding securities, stock exchanges, investment advisors and public utility holding companies.

The newest SEC commissioner is Isaac Hunt Jr., appointed by President Clinton and confirmed by the Senate this past February. Hunt, who holds a B.A. from Fisk University and an L.L.B. from the University of Virginia School of Law, is a former dean and professor of law at the University of Akron School of Law and dean of the Antioch School of Law in Washington, D.C.

The following is an interview with Hunt on how BE readers can become more well-informed investors and safeguard their money from unsolicited and unregistered brokers.

BE: How can investors protect themselves from possible securities fraud?

Hunt: I think one of the principal reasons people are cheated is because of greed. Someone tells them that they can make a 10% or 15% return on their investment, and they go for it and it turns out to be unrealistic. We have started a series of town meetings around the country to try to educate investors about what to look for when making investments.

BE: What are some key areas to examine before investing your money?

Hunt: You should look for reliable, registered brokers and not to get rich quick because there is no magic out there. You should really be wary of people you don't know making cold calls over the phone to try to sell you investments. You should also ask around with respect to the trust-worthiness of any broker you are dealing with.

BE: How can the reader ensure that certain stock investments are a good value?

Hunt: Ask the broker for a copy of the prospectus, which every company has to issue. The broker should have a supply of them, and you should read the prospectus as soon as you get it--many people simply don't.

BE: Can you cite a case that would be a valuable lesson to our readers?

Hunt: I can't talk about them because they're done in closed sessions. All I can say is that fraud comes in new schemes, old schemes. Rich people are defrauded as well as poor and middle-income people. It's across-the-board. There are bad apples in the industry, in all kinds of brokerage offices.

BE: What sort of misrepresentations have you discovered in respect to the mutual fund industry?

Hunt: Everything! You're going to make a fortune, or this stock fund has gone up 10% and it's going to continue to go up 10%. You can't lose money on this investment. All those things are the kinds of concerns we have about the industry.

BE: What kind of action can an investor take to investigate a financial professional?

Hunt: You can call the National Association of Securities Dealers (800-289-9999) to find out if there are any enforcement actions. They won't recommend the right investment for you, but you can find out if the organization is reputable.

BE: Do you believe that a disproportionate number of African Americans are getting shafted?

Hunt: I can tell you that the African American community has experienced a lot of pyramid schemes. You're promised a huge return and what happens is that the people who invest later. But eventually the money runs out. A classic sign of a pyramid scam is that the money you are promised is going to depend on the number of people you bring in to sell the product. I don't know why African Americans have so often fallen for those kinds of schemes. If you have a concern about whether something is a scam, call your state's securities administrator or call one of the SEC's regional offices.