Top 10 investment scams
Report says securities fraud spreading
from Wall Street to Main Street
April 23, 2001: 2:46 p.m. ET
cnnfn.cnn.com
NEW YORK (CNNfn) - Securities fraud is spreading beyond the boundaries of
Wall Street to reach the most vulnerable victims, including the elderly,
according to a report released Monday by state regulators.
The North American Securities
Administrators Association (NASAA)
released its "Top 10 Investment
Scams" list and said a growing
number of scam operators are
enlisting independent insurance
agents to push their schemes.
"While the vast majority of agents are
doing what they should and looking
out for their clients, a growing
minority, lured by high commissions,
are relying solely on marketing claims
that are misleading or false," NASAA
president Deborah Bortner said.
Some new scams have cropped up in
the past year, NASAA said, including payphone and ATM investments and
certificates of deposit with 10- to 20-year maturities sold to older Americans
who never get the chance to cash them in.
"Our volatile markets have investors,
particularly older Americans,
dependent on predictable interest
income, looking for safe havens,"
Bortner said. "So scammers are pitching their investments as low risk and high
return. That's an impossible combination. The higher the return, the higher the
risk."
NASAA's top 10 scams of the moment include:
1.Unlicensed individuals, such as life-insurance agents, selling
securities: NASAA suggested investors contact their state securities
regulator to make sure such agents are registered to sell securities. If
they're not registered, NASAA said, don't buy securities from them.
2.Affinity group fraud: Scammers use their victim's religious or ethnic
identity to gain their trust.
3.Payphone and ATM leasing: People are encouraged to buy shares of
payphones and ATMs with the promise of a high return on their initial
investment. Many of these have turned out to be "Ponzi" or "pyramid"
schemes, in which the money of one investor is used to pay off another.
4.Bogus promissory notes: Little-known -- sometimes non-existent --
companies issue short-term debt instruments that promise high returns
with little or no risk.
5.Internet fraud: Scammers continue to use the Internet to "pump and
dump" thinly traded stocks and publicize schemes.
6.Ponzi/pyramid schemes: These were named in honor of Charles Ponzi
who perfected the scam in the early 1900s. Inevitably, NASAA said,
such schemes collapse.
7.Callable CDs: High-yielding certificates of deposit are sold to elderly
investors, but they don't mature for 10 to 20 years unless the bank
redeems them, and early redemption may subject the victim to losses of
up to 25 percent of the original investment. NASAA said sellers of
callable CDs often try to hide the risks and restrictions involved.
8.Viatical settlements: Investors buy an interest in the death benefits of
terminally ill patients, hoping to cash in when the patients die. These are
"extremely speculative," NASAA pointed out, because it's impossible to
predict when someone will die, and victims sometimes end up buying
into the benefits of healthy people.
9.Prime bank schemes: Scammers promise a high rate of return by
accessing the investment portfolios of the world's "elite" banks. These
are popular with conspiracy theorists, NASAA said, who think they're
sharing the "secret" investments of the rich and powerful.
10.Investment seminars: These seminars, often touted in newspaper,
radio and TV ads and "infomercials," usually benefit nobody but the
person running the seminar.
NASAA urged investors to be skeptical about get-rich-quick schemes and to
contact their state securities regulatory agency if in doubt about the people
peddling such plans. |
