News Release
Tuesday, August 03, 2010
Contact
Lyn Peters, Director of Communications
PH (360) 902-8731, lyn.peters@dfi.wa.gov
Bill Beatty, DFI Securities Administrator
PH (360) 902-8723, bbeatty@dfi.wa.gov
FOR IMMEDIATE RELEASE:
DFI Identifies Top Traps Investors Should Watch For, Offers Resources To Help Investors Identify Scams And Avoid Fraud
OLYMPIA – The Department of Financial Institutions (DFI) today released its annual list of traps that investors should avoid when seeking to jump-start their investment portfolios as the impact of the financial crisis and increased market volatility continue to reverberate along Main Street.
Securities Administrator Bill Beatty said investors rebuilding nest eggs damaged by the market collapse as well as those frustrated with low interest rates are particularly susceptible to speculative investments that most often turn a promise for profit into thin air.
“Knowledge, attention to detail and a healthy sense of skepticism are a triple threat to fight investment fraud,” Beatty said. “State securities regulators provide detailed background information about those who sell securities or give investment advice, as well as about the products being offered. The more prepared you are, the better your chance of avoiding a trap that can leave you in a financial hole for many years.”
Beatty identified the top products and practices that investors in Washington should watch out for in the coming year:
Products
- Green Schemes. Investment opportunities tied to the development of new energy-efficient “green” technologies are increasingly popular with investors and scammers alike. Scammers also exploit headlines to cash in on unsuspecting investors, whether from investments related to the clean-up of the Gulf of Mexico oil spill or the rising interest in environmental innovations tied to “clean” energy, such as biodiesel, ethanol, wind energy, solar energy, carbon credits and other alternative energy financing.
- Promissory Notes, Deeds of Trust, Real Estate Investment Schemes. Promissory notes are an important means by which companies raise capital. Unfortunately, there have been many instances of unscrupulous individuals pushing bogus promissory notes. While fraudulent promissory notes appear to give investors the two things they desire most — higher returns and safety — they may not be worth the paper they’re printed on. Promoters may claim the investment has little risk, because the promissory note is secured by a deed of trust, but such investments are rarely without risk. For example, the promoters may fail to record the deed of trust for the investors’ collateral or the total amount of funds secured by the deeds of trust may far exceed the value of the property. Remember, all investments involve some form of risk – only invest what you can afford to lose.
- Foreign Exchange Trading Schemes. Currency trading and foreign exchange (forex) trading schemes can be particularly harmful to unsuspecting investors. Trading in foreign currencies requires resources far beyond the capacity of most individual investors. Promoters profit by charging high commissions or selling investment strategies assuming that trades are actually made. In some instances, salespersons and promoters who claim to have complex algorithms or propriety software programs which allow them to beat the market are actually just running Ponzi schemes. Too often, state regulators have encountered situations where there are no trades; the money is simply stolen.
- Oil and Gas Schemes. Regardless of the price at the pump, fraudulent energy promoters continue to capitalize both on interest in the commodity and on oil and gas as investment alternatives to the stock market. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors who cannot afford the risk. Securities investments offering profit participation in oil and gas ventures can be legitimate, but even when the underlying project is genuine, any revenues realized can be absorbed by high sales commissions paid to the promoter and dubious “expenses” skimmed off by the managing partner. Some promoters, many of whom have had past run-ins with regulators, have attempted to structure their “joint ventures” or “general partnerships” to avoid securities regulation and deprive investors of important protections.
Practices
- Private or Special Deals. Some investors encounter investment opportunities or deals couched as “private” or only for “special” clients. While securities laws do offer businesses the opportunity to raise capital by selling securities to a relatively small number of investors in a non-public offering, these securities are not subject to the same review as others. Many state securities regulators have seen continued or increased abuse of fraudulent private offerings made under federal exemptions or not regulated at all. Although properly used by many legitimate issuers, private offerings have become an attractive option for con artists looking to steal money from investors by promoting the special or private nature of these schemes and by making false and misleading representations.
- Affinity Fraud. Scam artists have found it lucrative to abuse membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Typical affinity groups include religious, ethnic, professional, educational, language, age and any other group with shared characteristics that allow investors to trust members of the group. Rather than trusting a person or company due to a common affiliation, investors should seek further information about the investment from an unbiased, independent source and review both the promises and risks.
Beatty cautioned investors to familiarize themselves with the warning signs of investment fraud and independently verify any investment opportunity as well as the background of the person and company offering the investment.
“Investors should do business with licensed brokers and advisers and should report any suspicion of investment fraud to us,” Beatty said. “One call can protect your financial security and might prevent others from becoming victims.”
DFI Director Scott Jarvis agrees, and offers some advice.
“Investors can never let down their guard,” Jarvis explained. “There will always be someone out there more than happy to separate investors from their money. One way Washington investors can stay on top of who’s out to get their money and scams to watch for is to sign up for DFI’s regular scam alerts.”
Sign up today for regular scam alerts from the Washington DFI at http://dfi.wa.gov/consumers/alerts.htm. Additional investor protection & fraud prevention information is available online at DFI’s site http://www.dfi.wa.gov/consumers/topscams.htm, the North American Securities Administrators (NASAA) site http://www.nasaa.org/investor-education/ and the Financial Industry Regulatory Authority (FINRA) sites http://www.finra.org/Investors/index.htm and www.saveandinvest.org.
About Division of Securities
www.dfi.wa.gov/sd ▪ 360.902.8760 ▪ 877.RINGDFI (746.4334)
The Division of Securities regulates securities investments, franchises, business opportunities, and off-exchange commodities sold in Washington and the firms and individuals that sell these products or provide investment advice. The Division handles complaints, conducts investigations, and takes appropriate enforcement actions to protect investors and combat fraud.
About DFI
www.dfi.wa.gov ▪ 360.902.8700 ▪ 877.RINGDFI (746.4334)
The Washington State Department of Financial Institutions regulates a variety of financial service providers such as banks, credit unions, mortgage brokers, consumer loan companies, payday lenders and securities brokers and dealers. The department also works to improve financial education throughout Washington through its outreach programs and online clearinghouse www.dfi.wa.gov/financial-education. In addition to posting information about licensees and administrative actions, DFI uses the Web and social media to provide financial education information:
www.twitter.com/FinEd4All ▪ www.twitter.com/DFIConsumers ▪ finlit.blogspot.com ▪ www.youtube.com/user/WADFI ▪ www.homeownership.wa.gov
[Top]
