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Hot investment scams abound

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.

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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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