If it sounds too good to be true, it almost certainly is. Take a look at the latest list of investment scams, released last week by the North American Securities Administrators Association.

  1. PONZI SCHEMES The premise is simple: pay early investors with money raised from later investors. The only people who make money are the promoters who set the Ponzi in motion.

  2. UNLICENSED INDIVIDUALS SELLING SECURITIES Anyone selling securities without a valid securities license should be a red alert for investors. Remember: No license, no sale.

  3. UNREGISTERED INVESTMENT PRODUCTS Con artists bypass stringent state registration requirements to pitch viatical settlements, pay telephone and ATM leasing contracts, and other investment contracts with the promise of “limited or no risk” and high returns.

  4. PROMISSORY NOTES Empty promises can leave these notes worth less than the paper on which they are printed.

  5. SENIOR INVESTMENT FRAUD Because they have built a lifetime of savings, seniors continue to face investment fraud by con artists peddling unsecured promissory notes, viatical settlements and other investments that are either fraudulent or unsuitable for them based on their particular financial needs.

  6. HIGH-YIELD INVESTMENTS Con artists lure investors with promises of triple-digit returns through access to “risk free guaranteed high yield instruments” or something equally deceptive.

  7. INTERNET FRAUD Stock promoters are using online “boiler rooms,” instant messaging, and fake websites to lure investors into “pump-and-dump” stock schemes.

  8. AFFINITY FRAUD Con artists are increasingly targeting religious, ethnic, cultural and professional groups.

  9. VARIABLE ANNUITY SALES PRACTICES Senior investors, in particular, should beware of the high surrender fees and steep sales commissions agents often earn when they move investors into variable annuities.

  10. OIL & GAS SCAMS With oil prices at record levels and continued Middle East instability, regulators warn that con artists may renew schemes promising quick profits in oil and gas ventures.

Dishonorable Mention
Three investment opportunities also were cited for “dishonorable mention,” including: penny stocks, private placements, and investment seminars.

What’s a Ponzi Scheme?

Charles Ponzi was an Italian immigrant who promised investors a “guaranteed” return on their money. What he did was use the cash from current investors to pay off earlier investors. By continuing to add more and more investors, he was able to build a pyramid scheme that generated more than $1 million a week in cash (and this was during the 1920s when a million dollars was REALLY a lot of money).

How can you avoid one? If anyone promises you a “guaranteed” return on your money, run in the other direction. There is no such thing as a guaranteed return — if there was, everyone would be rich.

What are Unlicensed Securities Dealers?

If you want to be a stock broker, there are some pretty rigorous tests you have to take (and pass). Unlicensed securities dealers haven’t taken these tests, and can’t buy and sell stocks on your behalf. They might know something, but if they were really smart, they’d be licensed and on the up and up.

How can you avoid being scammed? Only work with licensed securities dealers. You can look them up at the North American Securities Administrators Association website, www.nasaa.org.

While you’re on the website, make sure you look up their free publications:
How to spot a con artist
How to avoid becoming a victim
How to file a complaint
Know your rights as an investor
How to contact your securities regulator

Published: Apr 5, 2005