Top 10 investing scams
stock market has picked up steam lately, but for many investors the resurgence
isn't enough. Instead, they look for quicker ways to bolster their portfolios.
The problem is, some promised high-return opportunities are downright frauds.
Ponzi scammers top the list of scam artists taking return-hungry
investors to the cleaners, according to the latest look at the investment industry
by the North American Securities Administrators Association. A close second --
investment fraudsters targeting seniors.
schemes offer products and pitches that may sound tempting to many seniors who've
seen their retirement accounts and income dwindle in recent years," says
Ralph A. Lambiase, NASAA president and director of the Connecticut Division of
Securities. "It pays to remember that if an investment opportunity sounds
too good to be true, it usually is."
The quest for a safe
investment vehicle is the common theme in all the scams. Here are this year's
top 10, ranked roughly in order of prevalence or seriousness:
Ponzi schemes. This is an old scam named for Charles Ponzi, a swindler
from the early 1900s who conned $10 million from investors by promising 40 percent
returns. His scam has been copied by countless crooks. The formula is simple:
Promise high returns to investors and use their money to pay previous investors.
According to the NASAA, Ponzi scammers often blame government intervention
for the failure of their system. In Mississippi last year, two Ponzi scammers
pled guilty to a scheme that bilked 41 investors from four states out of $10.2
million. They told investors they were taking part in a money-trading program.
The program never existed.
2. Senior investment
fraud. Record-low investment rates, rising health care costs and an increased
life expectancy have set seniors up as targets for con artists peddling investment
fraud -- like Ponzi scams, unregistered securities, promissory notes, charitable
gift annuities and viatical settlements. Last year, Pennsylvania securities regulators
shut down a Ponzi scheme that bilked $2 million from seniors' pensions and IRAs.
3. Promissory notes. These are short-term
debt instruments often sold by independent insurance agents and issued by little-known
or nonexistent companies. They typically promise high returns, upward of 15 percent
monthly, with little or no risk.
stockbrokers. As share prices tumble, some brokers cut corners or resort
to outright fraud, say state securities regulators. And investors who have grown
more cautious and scrutinized their brokerage statements have discovered their
financial adviser has been bilking them via unexplained fees, unauthorized trades
or other irregularities.
5. Affinity fraud.
Taking advantage of the tendency of people to trust others with whom they share
similarities, scammers use their victim's religious or ethnic identity to gain
their trust and then steal their life savings. The techniques range from "gifting"
programs at churches to foreign exchange scams.
Unlicensed individuals, such as independent insurance agents, selling securities.
From Washington state to Florida, scam artists use high commissions to entice
independent insurance agents into selling investments they may know little about.
The person running the scam instructs the unlicensed sales force to promise high
returns with little or no risk.
This is the third year this entry has been
on the top-10 list.
Investors approached by an independent agent should
first call the state's
securities regulator and ask if the salesperson is licensed. Then ask whether
the investment being offered is registered as well. If the answers are yes, the
investors should be more comfortable about the product. But investors should review
the product with the same healthy skepticism that they would any investment opportunity.
"Prime bank" schemes. Con artists promise investors triple-digit
returns through access to the investment portfolios of the world's elite banks.
Purveyors of these schemes often target conspiracy theorists, promising access
to the "secret" investments used by the Rothschilds or Saudi royalty.
In an effort to warn investors, the Federal Reserve pointed out that these don't
exist. But unfortunately, that government denouncement just feeds into the conspiracy
mindset linked to this scam.
8. Internet fraud.
According to NASAA, Internet fraud has become a booming business. In November,
federal, state, local and foreign law-enforcement officials targeted Internet
fraudsters during Operation Cyber Sweep. They identified more than 125,000 victims
with estimated losses of more than $100 million and made 125 arrests.
Internet has made it simple for a con artist to reach millions of potential victims
at minimal cost," says Lambiase. "Many of the online scams regulators
see today are merely new versions of schemes that have been fleecing off-line
investors for years."
Lambiase warns consumers to avoid the infamous
Nigerian 419 scam, saying Internet users should ignore e-mails from individuals
in need of help who want to deposit money in overseas bank accounts.
be dot-conned," he says. "If you get an e-mail pitching a deal that
can't be beat, hit delete."
9. Mutual fund
business practices. Recent mutual fund scandals have made the national
news and attracted the attention of investors and launched several investigations.
"These investigations demonstrate a fundamental unfairness and a betrayal
of trust that hurts Main Street investors while creating special opportunities
for certain privileged mutual fund shareholders and insiders," says Lambiase.
"We will continue to actively pursue inquiries into mutual fund improprieties,"
10. Variable annuities. As sales
of variable annuities have risen, so have complaints from investors -- most notably,
the omission of disclosure about costly surrender charges and steep sales commissions.
According to the NASAA, variable annuities are often pitched to seniors through
investment seminars -- but regulators say these products are unsuitable for many
retirees. Lambiase says variable annuities make sense only for consumers who can
afford to have their investment locked up for 10 years or longer.
fight against fraud never stops because each year con artists discover new ways
to fleece the public," says Lambiase. "Sadly, many of the age-old scams
still work to cheat victims of their hard-earned savings as well."