Investor Threats: The Biggies

As long as there’s money to be made swindling unwitting investors, fraudsters and scam artists will always be around. That’s why we preach our mantra of keeping ever-vigilant about your investments, and remembering the old but reliable rule of thumb, “If it sounds too good to be true, it probably is.” Unfortunately, new scams or new variations on old scams are constantly popping up. That’s why we found the recent list, compiled by the North American Securities Administration Association (NASAA) so useful, and thought we should share it.

Creative Commons by Shaunak De

Creative Commons by Shaunak De

If you’ve never heard of the NASAA before, you’re probably not alone. Funnily enough, though, you’ve probably heard of the SEC (Securities and Exchange Commission), which is actually two decades younger than NASAA, and primarily operates on the federal level. The NASAA on the other is an association of state-level securities regulators appointed by their Governors or Secretaries of State, and they help protect Main Street investors as well as advise small business owners on securities compliance and best practices. At any rate, they recently put out a list of the 2013 Top 10 financial products and practices that threaten investors and small business owners. Here below are a few of the very biggest scams going that you really need to watch out for. If you’d like to check out the full list from NASAA, please click here.

5 of the Biggest Investor Threats

Private Offerings. Among the most common products or schemes misleading investors, Private placements offerings are highly illiquid, under-regulated, and generally unsuitable for ordinary investors. For more on private offerings, please click here. With the recent passage of the JOBS ACT, the NASAA expects to see a sharp rise in scams related to private offerings as a result of the ubiquity of advertising on the internet and in social media to unqualified and unwary investors.

Real Estate Investments. The subprime mortgage crisis and global financial crisis of 2008-2009 left a lot of distressed real estate on the market. And while there’s certainly still a multitude of good opportunity for brave investors in real estate funds, there’s also a tremendous amount of fraud being perpetrated in this particular sector. Most notably, non-traded real estate investment trusts (REITs) have, according to NSAA, been very popular with scam artists of late. For more on REITs and why they can be risky or even toxic investments for ordinary investors, please click here.

High-Yield Products and Ponzi Schemes. By now, mostly thanks to Bernie Madoff scam of historic proportions, Ponzi is a household word again. Unfortunately, people generally still don’t understand what to look out for when one comes creeping into their portfolio. Retail investors will often be seduced by promises of extraordinarily high-yields and quick returns, and before they know it, they find they’ve been fleeced out of a ton of hard-earned cash. As classic and well-known as Ponzi schemes are, they continue to take in huge numbers of investors. 

Affinity Fraud. Scamsters no that people tend to trust and, more importantly to them, open their wallets more readily for people with whom they perceive they share a common interest, whether it be religion, age, or background. Affinity fraud is more of a tactic than a scheme, since fraudsters who practice it use personal and emotional appeals to lure investors into Ponzi-like operations.

Self-Directed IRA Accounts. Now that investors are more and more running their own IRA accounts, scam artists have caught on and are using investors’ lack of expertise and experience to direct them into bogus ventures, including Ponzi schemes and alternative investments like private placements, startups, and real estate trusts. Since in self-directed accounts, investors cannot easily turn to a trusted financial advisor for advice on how credible a particular venture looks, fraudsters have a new and distinct advantage. 

As always, if you or anyone you know has been the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation.