The North American Securities Administrators Association Inc. recently
released its top ten list of financial products and practices that con
artists use to defraud investors out of their hard-earned money. This
year's list of top investment frauds and investment scams is as follows:
Affinity Fraud. Affinity fraud has become increasingly prevalent in recent years. According
to the NASAA, a recent national study found that 25 percent of
Ponzi schemes use affinity fraud tactics. "The most commonly exploited are the
elderly or retired, religious groups, and ethnic groups," warned
the NASAA. "Investment decisions should always be made based on careful
evaluation of the underlying merits rather than common affiliations with
Bogus or Exaggerated Credentials. Recently, the U.S. has seen an unprecedented climb in the number of credentials
available to professionals as well as an increase in the number of salespeople
boasting meaningless or exaggerated professional designations. "Investors
should press for full disclosure and the meaning behind all designations,
and should check with their state regulator if they have any suspicions
about claimed credentials," warned the NASAA.
Distressed Real Estate Schemes. The real estate crisis has led to the proliferation of investment offerings
involving distressed real estate. "While many legitimate investment
offerings are tied to real estate, investment pools targeting distressed
real estate have become increasingly popular with con artists as well
as investors," said the NASAA. "Investments in properties that
are bank-owned, in foreclosure, pending short sales or otherwise in distress
inevitably carry substantial risks and should be evaluated carefully."Credentials
and fancy titles conjure up trust and authority in the eyes of investors,
a fact that both legitimate financial professionals and con artists use
to their advantage.
Energy Investments. Energy investments are volatile and risky investments, even when they're
legitimate, and a total loss of principal is more common than most investors
want to believe. Add to that the fact that many fraudsters use high-pressure
sales tactics to convince investors of the investments' "bountiful"
yields and "unparalleled" returns, and you have an investment
that's simply too risky for most investors. "Energy investments
tend to be poor alternatives for those planning for retirement and should
be avoided by anyone who cannot afford to strike out when trying to strike
it rich," the NASAA stated in the announcement.
Gold and Precious Metals. Con artists often claim that investments in gold and precious metals
are sure-fire ways to earn solid, risk-free returns. This simply isn't
true. According to the NASAA, this past spring saw a 30 percent decline
in silver's value over a mere three-week period. And, many gold schemes
involve "sales" of gold that don't even exist. For an example
of a recent gold scam, click
Mirror Trading. A new trend in social media, mirror trading, can be used by fraudsters
to launch fraudulent investment schemes, to manipulate the markets, and
to misrepresent their professional credentials. "Investors [who partake
in mirror trading] should not be lulled into a false sense of security,
and they need to continue to objectively evaluate and carefully consider
all new or popular investment platforms," warned the NASAA.
Private Placements. Much has been written on the
unsuitable nature of private placement investments for the majority of investors.
They're highly illiquid, risky products, and they are only marginally
regulated, if at all. While there are legitimate opportunities involving
private placements, these products are commonly used to mask an investment fraud.
Promissory Notes. Promissory notes are inherently risky products, and they are quickly
becoming a fraudster favorite. To learn more about how promissory note
fraud schemes work, read our investor article
Securities and Investment Advice Offered by Unlicensed Agents. Securities regulators have seen a consistent increase in investment advice
being handed out by unlicensed sales agents, particularly in the insurance
field. "Investors are often unaware that their insurance agent may
not be licensed to give investment advice, and these recommendations too
often turn out to be unsuitable or result in investors placed in under-performing
products or those with hidden fees or long lock-up periods," warned
the NASAA. Investors should insist on seeing a proper license before following
anyone's investment advice.
Securitized Life Settlement Contracts. While there are legitimate life settlement contracts and investments,
the majority of "securitized" life settlement contracts (i.e.
investments that combine life settlement contracts with traditional securities)
are nothing but frauds. Often they leave "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," said the NASAA.
To find out how to protect yourself from investment fraud, browse our investor library