Securities Regulators Announce "Top 10" Investment Scams

1. Unlicensed Individuals, Such As Life Insurance Agents, Selling Securities. Lulled by high commissions - as high as 30% - insurance agents are selling securities without securities licenses. Some insurance agents state that the organizers of the scams told them they did not need to be registered because the products are not securities. They are wrong.
   
   
2. Affinity Group Fraud. Here, scammers use their victim's religious or ethnic identity to gain their trust, then "steal their life savings". Frauds include "gifting" programs at churches and foreign exchange programs targeted at Asian Americans.
   
   
3. Payphone and ATM Sales. The largest of these frauds were nothing more than Ponzi Schemes. In early March, 25 states and the District of Columbia announced actions against firms and individuals (many of whom were independent life insurance agents) that defrauded 4,500 people for $76 million. The investments were in coin-operated customer-owned phones. Investors were promised returns as high as 15%.
   
   
4. Promissory Notes. I discussed this scam in a previous article, Be Wary of "Prime Bank" and Promissory Note Schemes. Here, one invests in short - term debt instruments that are issued by non-existent or little known companies. The investments then are diverted to offshore accounts, to be spent by the promoters lavishly.
   
   
5. Internet Fraud. The wide reach and anonymity of the Internet makes for a fine venue to "pump and dump" thinly traded stocks and for other schemes. Regulators urge individuals to ignore chat room discussions and unsolicited email.
   
   
6. Ponzi/Pyramid Schemes. Always in fashion, here the promoters pay their early investors their "returns" by giving them the later investors' money. The scheme continues until there are not enough new investors. Then the scheme collapses.
   
   
7. "Callable CDs". A very different kind of fraud because major brokerage firms (not fly-by-night promoters) have sold them to unsuspecting investors. These are CDs. But the problem (and the material omission to investors) is their lengthy maturity (usually 10 to 20 years) and the fact that investors do not have the right to "call" (cash) them - only the issuing bank has that right. Likewise, if the bank chooses to call the CD, often a large loss (upwards of 25%) results.
   
   
8. Viatical Settlements. These originated as a legitimate means to assist terminally ill patients owning life insurance policies to pay their bills while they still were alive. Investors invest in the death benefits. But these investments often are fraudulent and always are extremely speculative. For example, one does not know when the terminally ill patient will die. As a result, investors have no certainty as to when they will earn a return on their investment. In a new twist, Pennsylvania regulators report that they are seeing "senior settlements", which are viatical type investments involving healthy seniors.
   
   
9. Prime Bank Schemes. Here promoters claim triple digit returns in purportedly highly exclusive, secret "investments" involving the world's elite banks. I wrote about this scam in a previous article, Be Wary of "Prime Bank" and Promissory Note Schemes.
   
   
10. Investment Seminars. These seminars tout "Get Rich Quick" schemes in just about anything. Promoters reap profits through selling books, tapes, and seminar tickets.