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Top 10 Investment Scams
When compiling the top 10 investment scams, there is an interesting mix that
sometimes contains a hybrid of several scams, or is a mix and match of
existing scams to create a new scam.
They come in all shapes and sizes, with some easy to detect, and other very
hard.
Scammers have taken advantage of the recent financial turmoil that has
caused a lot of people to look for new ways to invest. Low interest rates
and a lack of trust in the stock market has been driving the quest for high
return opportunities elsewhere.
The scammers have been quick to meet that demand by devising more creative
ways to part you from your hard earned money.
Ponzi scams top the list
according to the latest look at the investment industry by the North
American Securities Administrators Association.
Top 10 Investment Scams
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Ponzi Schemes. This is
a very old scam and involves promising a high return to investors and
using the money of new investors to pay previous investors. The scheme
collapses when money owed to previous investors is greater than the
money that can be raised from new investors.
Because a Ponzi scheme is technically insolvent, in the sense that its
liabilities exceed its assets from the first day it does business, it
can only continue until the pool of gullible new investors dries up
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Senior Investment Fraud. With rising health
costs, record low interest rates, and an increased life expectancy,
seniors have become a target for scammers pushing
investment fraud such as Ponzi schemes, unregistered securities,
promissory notes, and charitable gift annuities
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Unscrupulous Stockbrokers.
As share prices tumble, according to state securities regulators, some
brokers cut corners or resort to outright fraud. Some investors who have
become more cautious and scrutinized their brokerage statements have
discovered their financial adviser has been defrauding them using
unexplained fees, unauthorized trades or other irregularities
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Promissory Note Scams
A
promissory note is a written agreement to pay back a loan with a certain
amount of interest. Scammers offer an opportunity to invest in
high-yield promissory notes, which work much like bonds. But the scammer
never actually loans money to a third party. They simply take the
investor's money. They typically offer high returns such as 15% monthly,
with little or no risk
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Real Estate Investment Schemes.
State securities regulators have noted a marked rise in scams disguised
as offers to help homeowners caught facing foreclosure to 'save' their
homes or 'fix' their mortgages. It is usually done in exchange for a fee
paid in advance. Most of these advance-fee offers only generate a quick
profit for the scammer and provide little or no benefit to the consumer
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Prime Bank. The term often is referred to as
the worlds top 50 banks. Prime banks trade low risk, high quality,
instruments such as Federal Reserve notes and International Monetary
Fund bonds. Scammers promise investors triple-digit returns through
access to the investment portfolios of the world's prime banks. They
sometimes promise access to the 'secret' investments used by the
Rothschilds or Saudi royalty
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Pump and Dump.
A small group of informed people buy a stock before they recommend it to
thousands of investors. The result is a quick spike in stock price
followed by an equally fast downfall. The people who owned the stock
early quickly sell off their stock when the price peaks and make a huge
profit. Most pump and dump schemes recommend companies that are
over-the-counter bulletin board (OTCBB)
and have a small
float.
There is also a variation of this scam called the 'short and
distort.'
Instead of spreading positive news, scammers use a smear campaign and
attempt to drive the stock price down. Profit is then made by
short selling
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Life Settlements. State
securities regulators have been concerned about life settlements,
commonly known as 'viaticals', and the rising popularity of these
products among investors. While life settlement transactions have helped
some people obtain funds needed for medical expenses and other purposes,
those benefits may 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
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Commodity Scams.
These schemes include
investments in gold, silver, rare coins and gems. Scammers have recently
capitalized on the political circumstances that have driven up the cost
of oil and natural gas. The same circumstances make investments in
alternative energy sound quite attractive, however, just because it
sounds good for the environment doesn't mean it can't be a scam
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Natural Resource Investments.
There is a continuing rise in energy and precious metals scams promising
quick, high returns. Investors anxious to recover losses quickly will
likely be hooked by fraudulent oil and gas 'investments as well as
fraudulent offerings of investments tied to natural gas, wind and solar
energy, and the development of new energy-efficient technologies
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