Investment & Brokerage Scams
Promises of huge financial returns from securities investments such as stocks and bonds, oil and gas leases, or limited partnerships are often nothing more than that — empty promises. A growing number of consumers, primarily seniors, are targeted by fraudulent securities promoters and persuaded to invest their life savings in various investment scams.
Fraudulent securities brokers often run their business from a “boiler room” — a low budget office lined with telephones. Under these investment scams, the consumer — convinced that the promoter is making a legitimate offer — sends large sums of money to the promoter. The fraudulent promoter then disappears with the money.
The Federal Trade Commission reports that Americans are losing $1 billion a year to investment swindlers. The North American Securities Administrators Association is concerned that “the retirement nest eggs of Americans are in danger of being scrambled today by an alarming surge in investment schemes” and the American Association of Retired Persons (AARP) confirms: “while people over the age of 65 constitute only 12 percent of the population, they probably make up 30 percent of scam victims.”
AARP has developed a series of articles that identify and explain various types of investment scams. AARP’s http://www.aarp.org/money/wise_consumer/investment_fraud/ Investment Fraud Library is a worthwhile and helpful site of value to investors of all ages.
Review carefully the following tips to avoid becoming a victim of an investment scam:
- Do not invest unless you can afford to lose what you invest.
- If it sounds too good to be true, it probably is. No legitimate promoter ever will claim to offer a risk-free investment — a commodities or securities investment is basically a form of speculation or risk-taking, solicitation that claims there is little or no risk is a dangerous “red flag”.
- Verify that the brokerage firm is registered with the Commissioner of Securities. In most instances, firms that trade commodities also are required to register with the Commodity Futures Trading Commission and are subject to its regulations. Be suspicious of firms that trade commodities and are not registered. However not all registered firms are honest ones. (You also should consider consulting with a trusted adviser.) Registration simply means that the CFTC will be able to tell you whether there are any past or present legal actions pending by the government against the company.
- Make sure the broker’s address and phone number match the company for which he claims to work.
- Never give money to a collector/messenger who comes to a consumer’s home following up on a phone sale. Never write the broker’s own name on a check as the payee; use the company’s name.
- Ask the firm to send a prospectus or other literature about the firm. Do not be swayed, however, by the glossy brochures con artists produce. Also, ask for a written proposal describing conditions of the contract and a form outlining the risks involved with the investment.
- Ask a phone solicitor to explain the investment to your lawyer or accountant. Even if you don’t have an attorney or accountant, ask anyway because the salesperson’s response might be a tip-off to his real identity.
- A legitimate broker will have no objections while a con artist will say something like, “Normally I’d be glad to, but there just isn’t enough time for that,” or “Those people give investment advice.”
- Arrange for a meeting at the broker’s or your attorney’s office. It is never a good idea to do business with a faceless person over the phone. Ask a third party to attend.
If you are a victim of an investment scam, contact Consumer Fraud Online to discuss your options. A lawyer can discuss your legal options with you.