Investment Seminars. Promoters of creative investment products are increasingly seeking potential investors, particularly seniors, by offering seminars, many of them promising a free meal along with “higher returns and little or no risk.” Unfortunately, in many of the cases that securities regulators see, it’s just the opposite: high risk and no returns, just disastrous losses. Remember: There’s no such thing as a free lunch.
Unlicensed Individuals & Unregistered Products. Anyone selling securities or providing investment advice about buying or selling securities must be appropriately licensed. Anyone engaging in these activities without a valid license to do so should be a red alert for investors. Con artists also bypass stringent state registration requirements to pitch investments with “limited or no risk” and high returns. Remember: Carefully check out anyone providing investment advice or offering to help you buy or sell securities.
Affinity Fraud. Con artists are increasingly targeting religious, ethnic, cultural and professional groups. Some may be members of the group or pretend to be members in order to gain trust. Con artists often recruit a respected member of a community or religious congregation to promote their schemes by convincing them that a fraudulent investment is legitimate. In many cases, even these leaders become victims of what turns out to be a Ponzi scheme. Remember: Investigate before you invest – no matter who is selling.
Energy Scams. Rising oil and natural gas prices have made a variety of traditional and alternative energy projects attractive to investors. Most of these investments are highly risky and not appropriate for smaller investors. Remember: Con artists tend to follow the headlines.
Internet Fraud. Promoters of fraudulent schemes continue to take advantage of technology to lure investors into fraudulent stock schemes. Be wary of investments being pitched through unsolicited e-mails, instant messages and phony websites. Remember: The Internet can be a con artist’s dream – easy access to you and your money, with no “return address” if the deal goes sour.
Unsuitable Sales. What is a suitable investment for one investor might not be right for another. Securities professionals must know their customers’ financial situation and refrain from recommending investments that they have reason to believe are unsuitable. For example, some products are often unsuitable for senior citizens because they might be long-term investments that limit access to invested funds.
Sometimes sales agents stand to earn such high commissions on certain investment products that they don’t always adhere to the suitability standards – with potentially dire consequences. Remember: Make sure your investments match up with your age, your need for access to money, and your risk tolerance.
Real Estate Investment Contracts. Despite the recent decline in property values, investments in real estate long have been viewed as a “sure thing,” one with little downside risk and the potential for substantial returns. Some real estate investments are securities subject to full regulation under the state and federal securities laws, including registration requirements and antifraud rules. Remember: Just because an investment involves real estate – or pay phones or worm farms – it still may be a security.
Foreign Exchange Trading. Foreign exchange (forex) trading can be legitimate for governments and businesses concerned about fluctuations in international currencies, and it can even be appropriate for some individual investors. But the average investor should be wary when it comes to these complex markets. Forex scams attract customers with sophisticated-sounding offers placed in newspaper advertisements, radio promotions, or on Internet sites. Remember: If you don’t understand an investment, don’t invest.
Prime Bank Schemes. Often promising high-yield, tax-free returns, promoters of these schemes offer to let the “little guy” in on what they claim are financial instruments from elite overseas banks usually offered only to the world’s wealthiest investors. “Prime” banks do not exist and the scam artists have no intention of creating a profit for anyone but themselves. Remember: Often the most sophisticated sounding investments are just false promises in fancy garb.
Private Securities Offerings. Con artists are turning increasingly to private securities offerings under Rule 506 Regulation D of the Securities Act of 1933 to attract investors without having to go through the full registration process. These offerings may be associated with fraud. Remember: Especially with lightly regulated investment offerings, it pays to consult a trusted financial adviser.
