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Top 10 investing scam - BEWARE

The stock market has picked up steam lately, but for many investors the resurgence isn't enough. Instead, they look for quicker ways to bolster their portfolios. The problem is, some promised high-return opportunities are downright frauds.

Ponzi scammers top the list of scam artists taking return-hungry investors to the cleaners, according to the latest look at the investment industry by the North American Securities Administrators Association. A close second -- investment fraudsters targeting seniors.

"These schemes offer products and pitches that may sound tempting to many seniors who've seen their retirement accounts and income dwindle in recent years," says Ralph A. Lambiase, NASAA president and director of the Connecticut Division of Securities. "It pays to remember that if an investment opportunity sounds too good to be true, it usually is."

The quest for a safe investment vehicle is the common theme in all the scams. Here are this year's top 10, ranked roughly in order of prevalence or seriousness:

1. Ponzi schemes. This is an old scam named for Charles Ponzi, a swindler from the early 1900s who conned $10 million from investors by promising 40 percent returns. His scam has been copied by countless crooks. The formula is simple: Promise high returns to investors and use their money to pay previous investors.

According to the NASAA, Ponzi scammers often blame government intervention for the failure of their system. In Mississippi last year, two Ponzi scammers pled guilty to a scheme that bilked 41 investors from four states out of $10.2 million. They told investors they were taking part in a money-trading program. The program never existed.

2. Senior investment fraud. Record-low investment rates, rising health care costs and an increased life expectancy have set seniors up as targets for con artists peddling investment fraud -- like Ponzi scams, unregistered securities, promissory notes, charitable gift annuities and viatical settlements. Last year, Pennsylvania securities regulators shut down a Ponzi scheme that bilked $2 million from seniors' pensions and IRAs.

3. Promissory notes. These are short-term debt instruments often sold by independent insurance agents and issued by little-known or nonexistent companies. They typically promise high returns, upward of 15 percent monthly, with little or no risk.

4. Unscrupulous stockbrokers. As share prices tumble, some brokers cut corners or resort to outright fraud, say state securities regulators. And investors who have grown more cautious and scrutinized their brokerage statements have discovered their financial adviser has been bilking them via unexplained fees, unauthorized trades or other irregularities.

5. Affinity fraud. Taking advantage of the tendency of people to trust others with whom they share similarities, scammers use their victim's religious or ethnic identity to gain their trust and then steal their life savings. The techniques range from "gifting" programs at churches to foreign exchange scams.

6. Unlicensed individuals, such as independent insurance agents, selling securities. From Washington state to Florida, scam artists use high commissions to entice independent insurance agents into selling investments they may know little about. The person running the scam instructs the unlicensed sales force to promise high returns with little or no risk.

This is the third year this entry has been on the top-10 list.

Investors approached by an independent agent should first call the state's securities regulator and ask if the salesperson is licensed. Then ask whether the investment being offered is registered as well. If the answers are yes, the investors should be more comfortable about the product. But investors should review the product with the same healthy skepticism that they would any investment opportunity.

7. "Prime bank" schemes. Con artists promise investors triple-digit returns through access to the investment portfolios of the world's elite banks. Purveyors of these schemes often target conspiracy theorists, promising access to the "secret" investments used by the Rothschilds or Saudi royalty. In an effort to warn investors, the Federal Reserve pointed out that these don't exist. But unfortunately, that government denouncement just feeds into the conspiracy mindset linked to this scam.

8. Internet fraud. According to NASAA, Internet fraud has become a booming business. In November, federal, state, local and foreign law-enforcement officials targeted Internet fraudsters during Operation Cyber Sweep. They identified more than 125,000 victims with estimated losses of more than $100 million and made 125 arrests.

"The Internet has made it simple for a con artist to reach millions of potential victims at minimal cost," says Lambiase. "Many of the online scams regulators see today are merely new versions of schemes that have been fleecing off-line investors for years."

Lambiase warns consumers to avoid the infamous Nigerian 419 scam, saying Internet users should ignore e-mails from individuals in need of help who want to deposit money in overseas bank accounts.

"Don't be dot-conned," he says. "If you get an e-mail pitching a deal that can't be beat, hit delete."

9. Mutual fund business practices. Recent mutual fund scandals have made the national news and attracted the attention of investors and launched several investigations.

"These investigations demonstrate a fundamental unfairness and a betrayal of trust that hurts Main Street investors while creating special opportunities for certain privileged mutual fund shareholders and insiders," says Lambiase. "We will continue to actively pursue inquiries into mutual fund improprieties," he says.

10. Variable annuities. As sales of variable annuities have risen, so have complaints from investors -- most notably, the omission of disclosure about costly surrender charges and steep sales commissions. According to the NASAA, variable annuities are often pitched to seniors through investment seminars -- but regulators say these products are unsuitable for many retirees. Lambiase says variable annuities make sense only for consumers who can afford to have their investment locked up for 10 years or longer.

"Our fight against fraud never stops because each year con artists discover new ways to fleece the public," says Lambiase. "Sadly, many of the age-old scams still work to cheat victims of their hard-earned savings as well

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23 Readers Comment:

  1. Dave Jackson said...

    Great advice and people should keep their eyes open for these sort of scams. In fact, sites like this one that detail exactly how the scam goes down are the best out there. Good work!

  2. Satya Narayan said...

    You have covered nearly every type of investing scams that generally take place here. Thanks for that and i would like Google to bring investors read these 10 points so they would be aware of scams and do not fall in the net of 'con-artists' you mentioned. Also we should not be dot-conned as a lot of internet scams has comeup at different sites who ask to pay them for service which you would never get.

  3. Pranav Shirodkar said...

    Every step in life either involves a scam or a successful turn [if you are lucky, that is..] This post made me wonder the things i've experienced in life regarding such petty issues, where people try worthless means to get other innocent people scammed of their hard earned money. It sure is difficult to keep close attention to whom and how you are dealing with. I totally agree with your advice and i will stick to it for reference in the near future. I'd say, you've touched each corner of investment scams that usually, we can see happening around us. As for the "con-artists" go, hell no suO!

    Thanks for those lovely tips.. Great job on the post!!

  4. Dd said...

    You have good advice.
    Just think it over when you want to spend your money into some investment, don't just look at their ROI (Return On Investment), but look their security and terms too.
    if you find suspicious acts or terms, just leave that kind of investment.

  5. Luís said...

    Great post indeed! It is a fact that the Internet nowadays is full of "Make 1,000$ in 30 minutes" and likewises. And it is also a fact that many people still beleive it is true. You can indeed make $$$ on the Internet but you can't do that without a good effort.

    Good effort is this article that tries to explain us what we SHOULDN'T do! Keep up!

  6. admin said...

    I would like to say well done for posting this, there are a lot of scams around in this day and age, and the Internet is literally crawling with scammers.

    Good work!

  7. Cicero said...

    Firstly, thanks a lot for those splended tips.

    However, I feel that the inter scam details should be the number 1. Countless people have been caught unawares an have lost $10-1000.

    I will give you guys one good advice about investment. Make sure that the bank has a good reputation. Don't listen to the agent's version of the story alone :D. Take a look at your CNBC :D

  8. Surf N' Earn Zone said...

    This is a great piece of advice to prospective investors. People should be careful when investing their money in stocks. They should definitely keep in mind that all that appears as gold is not gold.

    The stock market is very volatile now, eating up on profits of many brokers and seasoned traders. They are just looking for moolah; to rake in cash and cover up for their lost profits.

    I think your article really helped me and will perhaps help other people like me too.

  9. Behind Blue Eyes said...

    Thanks for the great list, its very thoughly done. I would also recomend a link the the FBI website... somewhere on there they have a list of the latest internet scams going on. They do a very thorough job of updating it on a regular basis

  10. Shawn said...

    I'm glad that someone out there is warning people of these scams. Every day people lose money because they don't think that anything bad will happen to them but thankfully people like you are out there that warn them about running into these things. This should be a published list on investing sites as to avoid getting scammed, or at least lowering the odds. It's pathetic that people out there would really pull this but unfortunately that's the world we live in. Thanks for putting this list together.

  11. Troy LeMaire said...

    Great Article, Most people don’t even bother to think about whether an investment is “Too good to be true”. If you are looking for ways to get a good return on your investment your basic homework should be how to about being scammed out of your money. I am glad I came across this article, I will refer it to family and friends.

  12. Ahmad Husaini Mustafa said...

    ok good advice for all newbie and for those really new to the network marketing. Me myself also got scammed before about 100USD investing on one of the site said that they are legit but the truth is not. So with this advice i'll be aware of those scammers out there that only search easiest ways to get money.

  13. aditya said...

    Thanks for sharing your thoughts.I'm bookmarking this page for future reference.
    I do feel the rates of scams have increased a lot this year.People are being robbed of their very hard earned money.
    People definitely need advice and guidelines on how to cope up with this issue.It is indeed very good thinking by the writer to post this article.
    Thanks and keep up the good work!!

  14. My Little Room said...

    Great list, thank you very much.
    Many important points, much to think, are so many frauds, we can not trust anyone until our faith is shaken, where the world go stop ...

  15. Wizzoh said...

    Sound advice. Shame that to get ahead on the financial ladder of life there is almost always a victim of the transaction, be it through scam and fraud as you have herein noted, or even just pulling away chunks of money in the middle. In his idea of economic determinism, Marx regarded this sort of profiteering as theft as awful and punishable as fraud or common criminality.

  16. Anime Stand said...

    Thank you very much for the info...

  17. yogesh said...

    Nice posts on top 10 investing scam. It will be some useful informations for those running websites. And methods/ways how to prevent scamming will help them duely. Good job and some nice researches made. Keep the nice work.

  18. justicejayant said...

    Nice investigation by yours, I have also made a site on this concept but i didn't ever known about these points, Thanks dude, Keep sharing.

  19. Just a thought said...

    The bad thing about the ponzi schemes is that they work for a long time before they are caught. Eventually the scammer gets enough funds to run off with and he just disappears. Sometimes he doesn't disappear "in time" and he winds up getting caught.

  20. Rodney said...

    Great post! Scams seem to be all over the place, and the sad thing is, most people are not able to identify what is a scam, and what is not. I am pretty new to the investing scene, but I seem to have more knowledge than alot of others, that blindly invest! Great investigation, and I learned valuable information from your post! Thanks!

  21. rknup2 said...

    In this day and age SCAMs are everywhere. Alot of times these internet and underhanded scammers prey on the older, more gullible computer users that do not understand the severity of their actions. It is sickening how bad these people are rooked into these scams!

  22. Zac Davis said...

    I hate these stupid fake investing things. Most of them seemed to be aimed at older people who can hardly think for themselves, let alone make an informed decision about something like this. I guess people will really do anything for money.

    Also, what is NASAA? I know what NASA and NSA are, but never heard of NASAA.

  23. Vasu said...

    Good Projection!

    Now a days the rate of scams in are more than anything
    The day dreamers who dream about "Making $$$$ without any effort" are easy to get scammed!
    People should learn from guys like you & think before investing,they should be careful


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