Low dividend rates and a struggling economy. That's when investors are most likely to let down their guard and get taken by an an investment scam.
Washington residents alone lose $50 million to $100 million each year in these scams, most of which could be avoided if people would take time to do a little research before investing.
“Understanding what you’re investing in is crucial to making sound financial decisions,” says Mike Stevenson, director of securities for the Washington State Department of Financial Institutions. “Make educated choices before giving anyone any money.”
Here is this year's list of the DFI's top 10 investment scams—and some tips for protecting yourself:
Free lunches and dinners. A nationwide, year-long study of free-meal investment seminars by state securities regulators found that 100 percent were actually sales presentations; 13 percent flat-out fraudulent. Remember: just because you got fed doesn't mean you have to buy anything.
Affinity fraud. Crooks know that people trust others like themselves. So, scammers use religious or ethnic identity to gain the victim's trust. However, just because friends or family have invested does not mean that it’s right for you.
Internet fraud. Spam e-mails, chat rooms and online investment "newsletters" often promote stocks with hype and false information. The information offers a quick profit to lure investors, who buy and drive up the price of the stock, giving the promoter the opportunity to sell at a profit. Ignore e-mail offers, especially those from individuals needing help to deposit money.
Telemarketing fraud. Boiler rooms and high-pressure telephone sales operations peddle illegal or fraudulent investment products nationwide. Millions of consumers have signed up for the national Do Not Call Registry at (888) 382-1222 or visit www.donotcall.gov. Check it out!
Ponzi schemes. A business supposedly earns money to pay high returns to investors. The truth is it earns little or no funds, but relies on new investors to pay the early depositors' "profits." The scheme collapses when new investor money runs dry.
Fraud against seniors. Older investors are targeted by complex investment scams involving unregistered securities, promissory notes, charitable gift annuities, viatical settlements, and Ponzi schemes promising inflated returns.
Promissory notes. Short-term debt instruments are issued by little-known or nonexistent companies promising big returns—15% or more—with little or no risk. These notes lure investors hoping for higher returns, which never arrive. Does the company really exist? Get a financial statement for the company.
Unscrupulous brokers. While stockbrokers' assistance is often helpful for many investors, investors should educate themselves so they can detect any problems that signal an unscrupulous operation.
Unlicensed securities sellers. High-risk investments—such as promissory notes, oil and gas deals, gold or mining stock and viatical settlements—may be sold by unlicensed individuals. Be careful who you're dealing with.
Prime bank schemes. Con artists promise investors triple-digit returns through access to portfolios of elite or "prime" banks sometimes referred to as "risk free guaranteed high yield instruments" or something similar. They often reference "treasury securities," "letters of credit," or and "offshore accounts" to entice investors.
