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Hot investment scams abound
Daniel
Jimenez • Bankrate.com
So, you've got some extra money and you've
decided to invest it. That's great, but before you buy that oh-so-tempting
stock or bond, think about this. When it comes to consumer fraud,
not even the cops' moms are safe. Jay Esche, area financial manager
for the Office of the Comptroller's division of securities and investor
protection in West Palm Beach, Fla., knows this all too well. Esche
investigates the types of crimes to which his own mother fell victim.
In Florida, "the majority of our cases are the elderly,"
says Esche. "They get lonely. I'm working every day and then my
mother's phone starts ringing. It's somebody for her to talk to
and they sound real nice over the phone. They talked her into selling
one of her insurance policies. I filed a complaint and it turns
out the company was in violation of Florida insurance laws."
How big is the problem of investment fraud? No one
is exactly sure, but consumer loss estimates range in the billions
of dollars. According to the North
American Securities Administrators Association, the most frequent
complaints received involve high-pressure calls from brokers, brokers
who refuse to sell a stock when directed, brokers who make unauthorized
trades, and brokers who make unsuitable recommendations.
"I've heard estimates of $6 billion," says Marc Beauchamp,
a spokesman for NASAA in Washington, D.C. "It's definitely in
the billions. It's an imprecise science because so many people don't
come forward."
Things aren't getting any better either. Esche says
that his office gets about two calls a day concerning potential
fraud. Investigators received 6,391 complaints in 1999, up from
5,156 in 1998, according to a National Association of Securities
Dealers report. The numbers may be even higher still since a large
percentage of fraud is never reported.
Protect yourself
There are a few simple things that you can do to try
to protect yourself from getting bamboozeled, says Esche. First
off, read and retain all documents that brokers give you. They may
be especially useful later in proving that they told you one thing
but did another. Always request written information explaining your
investment such as a prospectus -- companies that register securities
are required to file them. Carefully review your account statements
and account information. If something seems funny with the dollar
figures (not funny as in ha!ha!), then be very suspicious.
Keep accurate and factual records. This is very important
if you ever expect to see any of your money again once it turns
up missing. Also, do not rely on the phone alone. Meet your
broker in person at his office if possible. You might be surprised
by what you find. If you're an online trader then check your broker's
disciplinary record with the NASD.
Finally, determine the registration status of the
firm you're dealing with. If they're not registered with a state
or federal regulatory agency, then who is regulating their business?
If the investment group is not subject to regulation then it'll
be up to you to play cop with your investment. Here are some of
the top "hot"
scams to look out for.
Infamous circus promoter P.T. Barnum once said that
there's a sucker born every minute. It seems like investment fraud
artists are out to prove it. There are dozens of different kinds
of scams being pilfered on consumers nationwide by these unscrupulous
swindlers.
"Everybody thinks that it's the little old lady from
Pasadena that gets scammed," says Paul Young, CEO of Securities
Arbitration Group in Marina Del Rey, California, a private firm
representing investors who've been defrauded by securities brokers
and brokerage firms. "It happens to every single type of person
regardless of race, status or income. We get calls ranging from
your average consumer to Harvard educated millionaires living in
Beverly Hills."
Posted: May 19, 1998
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