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Fraud and Scam Awareness: Investment Frauds
Securities frauds are becoming more common than ever before. Many people are suckered in because they want the highest possible returns with the shortest possible waits. Remember the old rule, "If it sounds to good to be true . . ."
People are easy targets when they remove funds from traditional securities or retirement investments and look for "easier" earnings. Securities swindlers are often some of the sharpest looking companies and they typically appear to be well-established, trustworthy firms. Don’t be fooled by slick Internet sites or advertising—be wary before you invest with anyone whom you aren’t certain is part of an established and credible organization.
The North American Securities Administrators Association has a top ten list of investment frauds. These frauds, in alphabetical order are as follows:
Abusive sales practices
This is done by aggressive, unwelcome callers who push people to buy small-companies or less desirable stocks. People may even be pushed into buying worthless or fraudulent stocks. Beware any seller who rushes you into making a decision without first making sure you fully understand the risks and realities of your investment.
Affinity group fraud
This fraud relies on people’s willingness to support or be involved in various religious, ethnic or professional groups. False religious affiliation—where the investment swindlers play on the buyer’s desire to support a religion or ministry—seems to be the most common affinity fraud.
Bogus business franchise offerings
These investments are often found in the classifieds, at franchise trade shows, and sometimes on TV. The investor is encouraged to "get in on the ground floor" of a sure-fire opportunity. The victim discovers the fraud after finding that the franchise results and testimonials were vastly overrated. Often, franchise "investors" receive worthless information or a misrepresented inventory of goods and supplies after paying a huge fee.
Entertainment fraud
Everyone wants to be in showbiz. Schemes involve false investments in movies, TV shows, or video games. Swindlers advertise "can’t lose" results, huge profit sharing, or possibly even the chance to be involved in a feature movie. Be careful with any advertised opportunity to invest in the entertainment industry.
False Promissory notes
If you see any investment that promises unusually high returns and comes with an insurance or guarantee of those returns, be extremely cautious. Typically, only your credit union or bank will offer insured investments, and—usually—those investments will only be insured for the investment amount (not the earnings). One investment scam even bilked the buyers out of extra fees for the so-called insurance.
Internet investment fraud
Since the advent of the Internet, almost anyone can make himself appear to be an established and successful company. Before you enter any agreement or investment on the Internet, make sure you are actually dealing with a reputable organization.
Investment seminars
Day trading is a method that supposedly makes fast money for the startup investor who quickly buys and sells stocks in order to profit on price fluctuations. Beware of advertisements for seminars that promise to make you rich by teaching you how to become a day trader. Stock investments are best left to the professionals who almost always encourage more long-term strategies.
Ponzi schemes
Ponzi schemes are similar to pyramid schemes. You're offered a chance to jump into an investment that promises wild returns within a short time. Ponzi scam-artists usually pay "earnings" to the first investors by taking money from later investors. Those first investors may then be asked to reinvest the "earnings" in order to gain even larger profits. That’s the last time you’ll see your money. Always beware of testimonials and promises of high return. Ponzi scams are common on Internet chain-mail. The scams usually close down long before anyone discovers the rip-off.
Telemarketing fraud
This scam involves a caller (or in some cases an advertisement with a toll-free number) that promises you the chance to buy stocks with minimum service fees. The victim divulges her credit card number or checking account number (for a debit authorization) and in return gets fake forms or nothing at all. Scams are usually discovered after they’ve long since skipped town. Many telemarketing scams will also operate out of the country in order to avoid prosecution.
Viatical investment scams
Viatical scams promise the investor quick money and the chance to help someone. The victim is told that they can help a terminally ill person get an early payoff on a life insurance policy. The terminally ill person agrees to "sell" their insurance policy before dying—accepting, for example, $75,000 from the investor for a $100,000 policy. The investor will then collect the $100,000 after the policyholder dies. Although there are legal ways to invest in other people’s life insurance policies, this is becoming one of the fastest growing rip-offs. Either the supposedly ill policyholder can turn out to be completely healthy or bogus companies will sell investments without having any policies to back up the sale.
Be careful
It’s a boom market for investment con artists. Millions of inexperienced investors are looking for high returns for their money. Also, investors and con artists both benefit from the Internet. Before you make any investment decisions, consider your credit union. Northwest Community Credit Union offers various investments with federally insured and/or guaranteed earnings. In addition to the credit union’s products, we also offer investment and insurance services through Northwest Financial Resources.
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