May 2, 2007                                                         Contact:Lucas Hamilton


      Morrison takes legal action against Arizona man to end fraudulent investment activity

  • Montana State Auditor John Morrison has filed a Cease & Desist order and Notice of Proposed Agency Disciplinary action against Arizona man James Andrews and his company, InvestX. The action alleges Andrews victimized a Helena woman, causing her to lose nearly $300,000 by acting as an unregistered securities salesperson, an unregistered investment adviser and by committing fraudulent acts in her ETrade account.
  • An investigation by the State Auditor’s Office revealed the alleged victim met Andrews at a business conference where he befriended her, convinced her he was an investment manager with his own company, InvestX, and persuaded her to let him manage her account at ETrade. Over a three-month period, the victim deposited a total of $20,000 into her E*Trade account and gave Andrews her password so he could make investment decisions on her behalf. As part of the agreement, the woman was to compensate Andrews for his work.
      “Calling yourself a securities broker or investment manager doesn’t actually make you one,” said Morrison. “I urge investors to investigate brokers and the opportunities they offer. One call to my office to verify the status of a broker’s license or offering can help investors avoid falling victim to financial fraud.”
      Initially, Andrews executed trades in the victim’s account that resulted in small profits, but beginning in July 2006 Andrews began an investment strategy of buying speculative ‘put and call’ options in her account that resulted in substantial losses. During the first three weeks of July 2006 Andrews purchased 10,571 put and call options in her account using fraudulent funds from five NSF checks totaling $470,000 that he personally deposited to her account. By July 26, 2006 the victim’s account had a negative balance of $278,111.
  • “Andrews would deposit a bad personal check and then use the money to trade before the bank returned the check,” said Morrison. “The victim didn’t see this coming. She invested $20,000 expecting to make a small profit but instead, ended up owing ETrade over a quarter-million dollars.”
  • The Securities Division of the State Auditor’s Office worked closely with ETrade in its investigation of the matter. E*Trade was able to track the IP address used to execute each of the options trades and determined the orders came from Andrews’s computer. In addition, E*Trade was able to verify that Andrews changed the contact information on the woman’s account so all correspondence regarding the activity in her account was redirected to Andrews.
      “With the rise of online investing, some consumers are moving away from traditional financial professionals and entrusting their financial future to friends or family,” Morrison said. “The problem is these individuals aren’t licensed and may not be as ‘money-savvy’ as they claim.”
      If someone is offering investment advice or services, they need to be properly licensed with the Montana Securities Department and the law requires they make appropriate recommendations based on an investor’s financial situation. To verify the status of a broker’s license or investment offering or to report an unregistered agent or offering, call the State Auditor’s office at 1-800- 332-6148.