by Brian Mahany
The North American Securities Administrators Association released their list of most common investment schemes this week. It’s good reading and a good reminder of things to watch out for.
Many of the scams on this years list mirror events taking place in the economy. With gold and silver at record highs, many fraudsters are hyping phony gold stocks, Still others are making a play off the high foreclosure rates in many areas of the country.
This year’s top ten list includes:
Distressed Real Estate Schemes. Investment “pools” targeting distressed real estate have become quite popular. Investments in properties that in foreclosure, pending short sales or in distress can be quite risky. Even the legitimate foreclosure rescue funds are risky. Unfortunately, in many cases there is no investment in real estate; the money just goes into the fraudster’s pocket.
Energy Investments. While well established energy companies may be a good investment for many, fraudsters frequently tout investments in new synthetic or alternative energy sources or claim to have discovered oil and gas in some new field. Start up drillers are always risky; unfortunately many of these new investments are simply frauds
Gold and Precious Metals. These days you can turn on the TV without someone offering to buy your old gold jewelry. That’s because gold is selling for around $1800 per ounce. One of the current investment frauds involves hucksters claiming they are reopening some long abandoned mine or con men offering to sell some recently discovered cache of gold coins at a discount. Some claim you can open a margin account and purchase 10 times the amount of gold using their borrowed funds. If it sounds to good to be true, it probably is.
Authorities shut down the Gold Bullion Exchange earlier this year in Florida after that company defrauded 1,400 people of tens of millions of dollars. That company used a telemarketing scheme to get people to invest in precious metals. Regulators say it was nothing more than a Ponzi scheme.
Promissory Notes. This was has been around for years but with very volatile markets, it seems to be making a big comeback. Whereas some investors are lured by the prospects of big profits, many others are attracted to promises of reasonable interest rates backed up by some sort of guarantee. The guarantee, however, is usually worthless and the notes are often another Ponzi scheme.
Securitized Life Settlement Contracts. Life settlement contracts are investments in the death benefits of insurance policies that insure the lives of unrelated third parties. According to the NASAA, fraudsters are “embracing new schemes to deceive even cautious investors. For example, “securitized” life settlement contracts are increasingly popular investments that combine life settlement contracts with traditional securities, such as bonds that supposedly guarantee a fixed return on a fixed date, regardless of whether the insured outlive their life expectancies. This risk-reducing structure has too often proven fraudulent and left victims with nothing but worthless paper issued by a bonding company that does not maintain sufficient assets to fulfill the guarantee, operates in an unregulated overseas territory or simply does not exist. “
Affinity Scams. It’s a proven fact that we tend to be more trusting of people that belong to our church, share a military background or a common nationality. While most people would never fall for a Nigerian telephone scam, they willingly turn over their life savings to someone who claims to be from their church.
Ponzi scheme operators and con men know this too and exploit these close knit groups.
Mirror Trading. This is one that we have yet encountered in our fraud practice but the NASAA has it on their top 10 list so obviously it’s a problem. Fraudsters claiming to have a secret “system” or perfect record of never losing money in the market offer to allow you to mirror their trades in real time. How does that work? You send them your money and they will supposedly invest it at the same time they are trading their funds. Think about it, if someone really had a secret winning system, would they be including you in on the secret?
Private Placements. This is another area that has long been exploited by criminals. Private placements are offerings that are exempt from securities registration. While there are many legit private placements, fraudsters use the registration exemption regulations to cloak all types of illiquid investments and sometimes to simply steal your money.
Investment Products Sold by Unlicensed Brokers. Many, many times we find insurance agents selling investment products, accountants selling securities, stockbrokers selling tax shelters. It’s amazing what goes on in the financial services world. Unfortunately, many of these people aren’t properly licensed to sell these products and don’t fully understand them. Luckily, in most states that is grounds for getting your money back.
While each of these topics could warrant an entire book, its good to know where the problems are these days. Personally, I would add complex derivatives to the list. Some of today’s financial offerings are so complex that even the people selling them don’t fully understand them. They can be hard to resell too if you suddenly need money because of a layoff or sudden illness.
If you are the victim of any type of securities fraud or Ponzi scheme, call us. Our team of investment fraud lawyers have helped people across the U.S. get back their hard earned money. Brian Mahany is a former agent and white collar prosecutor and a licensed attorney for almost 30 years.
Mahany & Ertl, LLC – America’s Fraud Lawyers. Offices in Wisconsin, Michigan, Maine & California. Services nationwide.