Investment Scams on the Increase
IN THIS ISSUE:
1. Tactics Used by Scam Artists.
2. Today’s Top 10 Investment Scams.
3. Questions YOU Should Ask.
5. Contact Information and Important Links.
With the stock markets down for the third consecutive year, with CD and other “safe” investment yields at or near all-time lows, and with certain other investment options struggling as well, investment scams are on the increase . Unfortunately, many people continue to fall for these schemes. In this issue, we’ll look at some of the more common investment scams and give you the information you need to avoid them.
Generally speaking, American consumers are a savvy bunch. We tend to make sound, well informed buying decisions when it comes to our capital purchases such as a new car or a home. We know what we want and we know what to look for to avoid being taken. But when it comes to investments, we are not always so careful. The business of investment fraud, swindles and scams is alive and thriving, especially with the advent of the Internet. Securities fraud costs Americans billions of dollars each year, state securities regulators estimate.
Tactics Used by Scam Artists
No matter what their particular scam, swindlers typically use four basic tactics specifically designed to pique your interest and gain your trust. The first tactic is an expectation of large profits. Securities swindlers have traditionally played upon greed. Some scam artists boast of huge profits to be made. Yet more often, the scammers talk about profits that are just large enough to make you interested, but not skeptical. (You can easily earn 15-20%.)
The second tactic used is claiming that there is low or no risk attached to the investment. The desire to get something for nothing, or almost nothing, is strong. Some swindlers are so bold as to claim that there is NO risk to their “investment” or that returns are guaranteed. (Our investment offers equity returns with CD risk.)
The third tactic used by investment scammers is a sense of urgency. You should never feel pressured to invest. Swindlers will almost always say that it is essential that you invest right away, or that the offering is very limited or may be closing soon. They may try to make you feel as though you have been selected for a rare and special, but limited time, opportunity. ( Invest today; delaying could reduce your profit.)
The fourth tactic often used is confidence. Scam artists are going to be very confident of what they are selling you and of all the money you are going to make. They will also try to gain your confidence and your trust. Most swindlers like to talk a lot, so you don’t have time to think of, and ask, difficult questions (I’ll tell you what questions to ask below).
Today’s Top 10 Investment Scams
Investment scams have been around as long as there have been investors and have taken many forms over the years. Some have become classics like ponzi/pyramid schemes, promissory notes and prime bank schemes . In today’s volatile markets, investors have expressed renewed interest in non-traditional investments and investments that are “safe.” This has provided the investment scam artists with a rich and fertile environment.
Here is a list of the current top 10 investment scams released by State Securities Regulators.
1. Unlicensed individuals selling securities. In order to sell securities legally, one must be registered. Do not believe that a stranger on the phone is registered just because he (or she) says he is. To verify that a person is licensed or registered to sell securities, call your state securities regulator. If the person is not registered, don’t invest.
Also, don’t assume that someone is registered to sell securities just because
they sell insurance. In many states, the majority of “cease and desist”
orders issued by the securities divisions are targeted at insurance agents who
sell securities without the proper license. Most were independent life
As you can see, investment scams can be found everywhere. Scammers use direct mail, the telephone, phony newsletters, seminars and, of course, the Internet.
Questions YOU Should Ask.
You may be wondering how you can avoid being taken by an investment huckster. The simple answer is, ask questions! With any investment, whether promoted in person, by mail, telephone or on the Internet, a wise investor should ALWAYS slow down, ask questions and get written information. Also, be sure to take notes so that you have a record of what you were told in the event of any future dispute. As the old saying goes, a short pencil is better than a long memory!
Many investment scammers hate questions and will be evasive and as vague as possible. This is a huge red flag. Others will be pushy and use high-pressure sales tactics, the goal being to separate you from your money as quickly as possible. A legitimate financial professional, however, will welcome your questions and ask several qualifying questions of his own. He will also have no hesitation about providing any written or background material you request.
The key is, if ANYTHING about the person makes you the least bit uncomfortable, or if the investment sounds too good to be true, JUST SAY NO!
10 Questions To Ask
Here is a list of 10 questions from the Securities & Exchange Commission that every potential investor should ask.
Using the “EDGAR” Database
You should also take the time to do a little research. If applicable, start with the SEC’s EDGAR database. All US companies with more than 500 investors and $10 million in net assets, as well as all companies listed on the major stock exchanges, can be found on the EDGAR. You can go to http://www.sec.gov/edgar.shtml where you will find a tutorial on how to use the system.
There is a wealth of information on companies listed on the EDGAR. You can download financial reports for free. You can also find out if there are any regulatory actions or litigation pending. Unfortunately, many companies operated by, or promoted by, scammers are not listed on this database. As a result, it is always a good idea to check with your state securities regulator.
A Word About Foreign Currency Dealers
The foreign currency markets are not regulated like the stock, bond and futures markets. It is not currently a requirement that a person, or a company, be registered with any federal or state regulatory agency in order to deal in foreign currencies. As a result, there has been a great deal of fraud and investor abuse in this area, especially among smaller, locally owned “forex” dealers. This is not to say that all foreign exchange dealers are crooked. Most aren’t. Regardless, if you are going to deal in foreign currencies, I would recommend that you use a large, nationally known firm.
The same goes for precious metals dealers. Many firms that sell gold, silver, other precious metals and/or numismatic coins are not registered with any regulatory agencies. Be very careful who you deal with in this area.
A Word About Trading Systems
As you may be aware, there are countless “systems” out there for trading stocks, bonds, currencies, futures, etc. Trading systems come in all shapes and sizes – books, tapes, manuals, telephone “hotlines,” fax services, etc. – just to name a few. Here, too, many people promoting these services are not regulated.
There are two common threads with most of these systems: 1) they are always promoted to be the greatest thing going and will make you tons of money; and 2) I’ve never seen investors achieve remotely the kind of returns that are touted.
When it comes to these highly promoted investment systems, I suggest you ask yourself one simple question: If it works so great, why are they selling it?? Why wouldn’t they keep it secret and make all that money for themselves? My observation is that some of these systems might have actually worked, probably a long time ago, but when they stopped working, promoters decided to sell them to the public.
Conclusions – If It Sounds Too Good. . .
This E-Letter does not begin to address all of the types of investment scams that are out there. New ones are created every day. Many investors who get burned are too embarrassed to tell anyone or report the scammers to the regulators. Even if they do, many scammers move from place to place, before the regulators can catch up with them.
Make sure that anyone who is attempting to sell you securities, or most other investments, is properly registered to do so. If they are registered, you can contact the appropriate agency (see below) and/or your state securities department and inquire as to whether they have a history of regulatory problems.
As noted above, key is, if ANYTHING about the person or the investment makes you the least bit uncomfortable, or if the investment sounds too good to be true, JUST SAY NO!
My personal rule is, I don’t buy anything on the phone. Because I subscribe to so many publications, my name is on hundreds of mailing and telemarketing lists. I used to get tons of phone calls at my home. Last year, I subscribed to a service from Southwestern Bell called “Privacy Manager.” Now, if I get a call at home from an “anonymous” number, the caller is required to identify who it is, and then we can decide if we wish to take the call. You might check with your phone company to see if they have such a service.
For The Record
My company, ProFutures Investments, is registered with the Securities & Exchange Commission (SEC) as an Investment Advisor and with the U.S. Commodity Futures Trading Commission (CFTC). We are also members of the National Association of Securities Dealers (NASD) and the National Futures Association (NFA). We are also registered in all 50 states.
Finally, we have never sold, rented or otherwise shared any of our clients’ information with anyone. Some investment firms sell or rent their clients’ names and other information to outside parties. We do not! Never have, never will.
I hope this information on investment scams has been helpful. If you are looking for professional advice on your investments and financial planning, we will be happy to help you in a straightforward, no-pressure way that fits your goals and financial situation. Feel free to call us at 800-348-3601.
Contact Information & Important Links
These are the names, address and phone numbers of the major regulatory agencies. Keep them handy.
Here are some important links to help you stay on top of investment fraud.
Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.