1. Entertainment Investments
These unregistered investments, encompassing a variety of products including movies, infomercials, internet gambling and pornography sites, promise high returns while offering little disclosure of risk.
2. Gold Investments
Gold scams made the Top 10 list the national association for state securities regulators.
To wit: “With the high price of gold, investors should beware of gold bullion scams in which the seller offers to retain ‘purchased’ gold in a ‘secure vault’ and promises to sell the gold for the investor as it gains in value. In many instances the gold does not exist.”
Of course that means your money no longer exists.
3. Leveraged Exchange-Traded Funds (ETFs)
his relatively new financial product has been offered to individual investors who may not be aware of the risks these funds carry. The funds, which trade throughout the day like a stock, use exotic financial instruments, including options and other derivatives, and promise the potential to provide greater than market returns as the value of the underlying assets rise or fall. Given their volatility, these funds typically are not suitable for most retail investors.
4. Life Settlements
State securities regulators long have been concerned about viatical settlements, but now, the rising popularity of similar, related products among investors, life settlements, has prompted a recent congressional investigation. Viatical settlements involved the purchase of life-insurance policies of terminally ill persons, whereas life settlements involve the purchase of life-insurance policies of ordinary (non-terminally ill) persons, usually seniors. While viatical settlement and life settlement transactions have helped some people obtain funds needed for medical expenses and other purposes, those benefits come at a high price for investors, particularly senior citizens. Wide-ranging fraudulent practices in the life settlement market include Ponzi schemes; fraudulent life expectancy evaluations; inadequate premium reserves that increase investor costs; and false promises of large profits with minimal risk.
5. Natural Resource Investments
Regulators expect to continue to see a rise in energy and precious metals scams promising quick, high returns. Investors anxious to recover losses quickly likely will be hooked by oil and gas schemes, natural gas and the development of new energy-efficient technologies.
6. Ponzi Schemes
Despite the heightened awareness of Ponzi schemes following Bernard Madoff’s multi-billion dollar fraud and 150-year prison sentence, these scams continue to trap investors. The Ponzi scheme is a house-of-cards swindle in which high returns are paid to initial investors out of the funds of later investors, who end up losing all or most of their money to the promoter. Struck urged investors to beware of investment opportunities promising high and steady rates of return. “While some Ponzi investors may have a slight chance of realizing a return on their investment, most investors have from the outset no hope of recovery. Ponzi schemes are the securities world’s equivalent of a purse snatch,” Struck said.
7. Private Placement Offerings
Private placements offer businesses the opportunity to raise capital by selling securities to a relatively small number of investors as opposed to a public offering made through national securities markets. State securities regulators have observed a steady and significant rise in the number of private placement offerings that are later discovered to be fraudulent, especially those made under a federal registration exemption (Regulation D, Rule 506). Companies using this exemption can raise an unlimited amount of money without registering the offering with the SEC, and federal law preempts the states from requiring registration, so the exemption creates a method to raise capital with very little regulatory oversight. Although properly used by many legitimate issuers, the exemption has become an attractive option for con artists, as well as individuals barred from the securities industry and others bent on stealing millions of dollars from investors through false and misleading representations.
8. Real Estate Investment Schemes
These often claim secret or exclusive techniques for building wealth, and offer loans or suggestions to finance the investment, such as remortgaging houses. If real estate is bought for a set price and ownership is on a set date, that is likely a real estate transaction. If the seller continues to own the property and only sells an interest, then it might be a security.
9. Short-term Commercial Promissory Notes
Many seniors have lost their life savings by investing in short-term commercial promissory notes that are nine months or less in duration. These notes may be touted as being “insured” or “guaranteed,” but the insurance companies generally are located outside of the United States, are not licensed to do business in the United States, and lack the resources necessary to deliver on the promised guarantees. Unlike publicly advertised promissory notes, promoters of these notes usually attempt to use commercial paper exemptions as a basis for selling the products without registration. The commercial paper exemptions apply only to high-grade commercial paper traded by major corporations – not to these risky notes pushed to the public by a sales force paid with extremely high commissions.
10. Speculative Inventions and New Products
New products are for venture capitalists who know how to assess the risks. They are not good investments for your retirement money even though they may promise high returns.
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