Here is the text, incase that web page ever expires.
1. Affinity fraud
Many people don't know how to research an investment and its
salesperson thoroughly. This makes them vulnerable to affinity group fraud,
a scam in which a con artist claims to be a member of the same ethnic,
religious, career or community-based group as the would-be victim.
Another equally effective pitch, if the con artist is not a member of the
group, is to lull members into a misplaced trust by selling first to a few
prominent members, then pitching the scam to the rest by using the names
of those who previously bought. Scam artists frequently pay out high
returns to early investors using money from later arrivals.
Once the connection to the group is made, the natural skepticism of the
individual member is overcome. Even when they realize they've been
scammed, victims won't notify the authorities but will instead try to resolve
the problem themselves. This allows the swindler to play on loyalties within
the group and continue operating.
Back to Top
2. Blind pool investment offerings
Blind pools are investment vehicles that raise capital by selling securities to
the public without telling investors what the specific use of the proceeds will
be. They originated in England about 280 years ago and surfaced in the
United States during the stock market boom of the 1920s.
The primary purpose of many blind pools is to raise funds to acquire a
private firm that wants to go public without going through the usual
regulatory steps. A private firm can arrange to be taken over by a blind
pool company in a "reverse acquisition" (i.e., the private company is the
surviving entity). This allows the company to go public without the intense
scrutiny and delay associated with underwriting and regulatory review.
These actions often result in a significantly increased stock price for the
blind pool investors immediately after the acquisition. The original
promoters, who received their shares at prices far lower than the public
investors paid, can sell their interests immediately after the acquisition when
the price is high, leaving the investors to fend for themselves.
Back to Top
3. Commodity investments
Including everything from orange juice and precious metals to pork bellies
and Treasury bonds, commodity futures contracts are highly volatile
instruments through which a customer hopes to earn money from future
price changes.
Unfortunately, as in most areas of investment where substantial profits can
be made quickly, unscrupulous operators prey on individuals who probably
shouldn't be investing in commodity futures at all because they don't
understand this type of transaction and can ill afford potential losses.
Some of the red flags to watch out for are:
Unsolicited, high-pressure phone calls
Claims of inside information
"You must act at once!" warnings
Claims of large and rapid profits
Claims of virtually no risk
Contracts with names such as "deferred delivery," "fixed maturity" or
"cash forward" that are not contracts traded through regulated
commodities exchanges.
Many firms offering commodity-related investments are not subject to any
licensing by state or federal authorities. An easy way to determine whether
a firm is registered to conduct futures business is by contacting the National
Futures Association, the self-regulatory organization for the futures
industry, at (800) 621-3570.
Back to Top
4. High-yield 'prime bank' investments
Older Americans who depend on interest and dividend income are
vulnerable to con artists pushing bogus "prime bank" investments that
promise "risk free" annual returns of 20% to 200% or more.
The schemes go by many names: bank-secured trading programs,
high-yield investment programs, standby letters of credit, prime bank notes.
The common denominator? All are supposedly debt obligations guaranteed
by the world's top 100 banks, or "prime banks."
Con artists claim only big corporations, foreign banks or ultra-wealthy
investors know about them. They're pitched as secret trading programs
that the Rothschilds and Rockefellers set up years ago, which are only
offered to the elite. Often, investors are told not to investigate the offering
independently or risk being permanently expelled from participating in these
markets.
Back to Top
5. 'IRA-approved' investments
These are investments falsely promoted as "IRA Approved" or otherwise
endorsed by the Internal Revenue Service. Generally, they promise
sky-high returns from investments in anything from wireless cable television
to ostrich farming.
The IRS neither approves of specific investments nor does it directly or
indirectly advise retirement savers on what to do with their IRAs.
Don't be swayed by the fact that a bank or trust department is serving as
an IRA custodian. IRA custodians have to follow many IRS rules in
handling retirement funds, but are not obligated to check out the
investments to which savers direct funds. The custodian is not "on the
hook" if your IRA investment turns out to be a worthless scheme.
Back to Top
6. Self-employment and work-at-home scams
Promises of a sure path to financial independence through work-at-home
scams and other phony business opportunities are among the most
prevalent tactics swindlers use to prey upon those needing supplemental
income.
If you are a newly "downsized" worker, suddenly in possession of a large
severance package, you are also a prime target.
Self-employment scams often promise exclusive territories and
money-back guarantees. Many victims are assured that they will receive
marketing assistance and that income is guaranteed to exceed the purchase
price of the franchise, equipment or software.
Often the training is useless, the equipment or software doesn't work,
supposedly secure leads produce no business, there is no 24-hour "hotline"
to answer their questions and the guarantees are nothing but empty words.
Be especially wary of offers to pay you commissions for recruiting new
distributors. Most states outlaw this practice, which is known as
"pyramiding." State laws against pyramids say that a multilevel marketing
plan should only pay commissions for retail sales of goods or services, not
for recruiting new distributors.
Back to Top
7. International investment fraud
A new breed of con artists is cashing in on the rush to global investing.
U.S.-based swindlers with bogus overseas investment schemes operate
high-pressure telephone "boiler room" sales operations located outside the
U.S.
Complaints about overseas investment swindles involving precious metals,
penny stocks, mining, coins, currency speculation and special
foreign-banking instruments, such as certificates of deposit with "sky-high,
no risk" rates, are reported to state securities agencies on a regular basis.
Officials warn that the rise of offshore boiler room operations will make it
much more difficult, if not impossible, for investors to recover their funds
and for law enforcement agencies to investigate and prosecute.
Con artists are quick to pick up on the psychology of the investment
climate and create "look alike" investment swindles that mirror "hot"
investments in legitimate markets.
After the "Black Monday" stock market crash of 1987, investment
swindlers were quick to jump on investors' newfound distrust of paper
investments by fashioning their own phony versions of overseas gold and
mining investments, the so-called "dirt pile" scams that took an estimated
$250 million from investors in 1988.
Back to Top
8. Manipulation of microcap stocks
Sales of securities to unsuitable investors, fraudulent offerings and market
manipulation, particularly in the microcap or "penny stock" marketplace,
are on the rise, according to state statistics.
Although the companies are all small, most are legitimate. The danger lies in
the dishonest way that the stock is represented and sold.
Unlike blue chips and other stocks with substantial daily sales volume (the
number of shares bought and sold), the price of microcap stocks can be
moved through relatively small strategic trades. This is why online hype
usually involves previously unknown securities, often for companies
involved in mining or the world of high technology.
Investment bulletin boards and discussion groups are crammed with hot
tips about impending developments sure to send a stock soaring in value.
Just because these tips appear in cyberspace does not mean they are
exempt from federal insider-trading laws and rules. It is extremely unlikely
that genuine "insider information" would be broadcast publicly on an
investment bulletin board.
Back to Top
9. 'Exotic' scams
Commercial bulletin-board services and the Internet are laden with e-mail
"spam" and newsgroup messages promoting a wide variety of highly
suspect, unregistered investment deals.
Investments in wireless cable television "build-out" schemes, ostrich
farming, Internet shopping malls, snail ranching and viatical settlements are
common, as well as flat-out rip-offs, such as "chain e-mail letters" and
Ponzi schemes.
These so called "exotic" securities may pose a greater threat to consumers
than other cyber-schemes, since out-and-out scams often appeal to
individuals who do not feel sophisticated enough to speculate in stocks and
many involve minimum investments of $5,000 or more.
High-tech schemes are particularly popular, with paging licenses and
900-number scams among those reported most often. And a perennial is
the entertainment business, offering opportunities for investments in movie
deals and other entertainment products with promises of guaranteed profits
that minimize or ignore risks.
Back to Top
10. Stock promoters with undisclosed interests
The anonymity of cyberspace is exploited to the hilt by schemers who
promote fraudulent and abusive investment schemes. In reading a bulletin
board message about a stock, you have no way of knowing if the person
hyping the stock was secretly paid to do so.
If someone is considered an "agent" of the stock issuer, he or she is subject
to strict legal requirements about public statements, disclosure language
and penalties for intentional "misrepresentations and omissions" intended to
move stock prices.
Don't assume that two or more people talking up a stock are actually two
or more different people. Many computer bulletin board services allow
people to use aliases and nicknames. Though this is intended to protect
privacy, it also can be exploited by fast-buck artists.
As a result, you may end up dealing with an undisclosed broker, investor
or company insider intent on driving up the price of a stock through false
information or baseless speculation that is difficult or impossible to
disprove.
Online stock promoters may make all sorts of claims about visiting
companies, inspecting mining operations and having personal conversations
with company officials. Keep in mind that you may not be able to verify
who is making these claims, much less whether any of the information is
true. |
