Members of the North American Securities Administrators Association (NASAA)
have identified the ten most common investment scams that pose the top threats to investors. NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, Canada, and Mexico.
To prevent or respond to suspicious activity, see Fraud Detection and Prevention
. Feel free to consult us
for any investments you are considering.
We've listed the top ten investment scams below. The most serious and common scams are listed first. In addition to the top 10, three other scams were cited for "dishonorable mention": penny stocks, private placements, and investment seminars that make unsubstantiated claims that attendees will become wealthy by following plans or attending other seminars sponsored by the promoters.
1. Ponzi Schemes
Named for swindler Charles Ponzi, who in the early 1900s took investors for $10 million by promising 40 percent returns, these schemes are a perennial favorite among con artists. The premise is simple: promise high returns to investors and use money from previous investors to pay new investors. Inevitably, the schemes collapse and the only people who consistently make money are the promoters who set the Ponzi in motion.
2. Unlicensed Individuals Selling Securities
Anyone selling securities without a valid securities license should be a red alert for investors. Remember: No license? Find out why. No good reason? Do not buy. Check out brokers and investment advisors on the U.S. Securities and Exchange Commission website
3. Unregistered Investment Products
Con artists may attempt to bypass stringent state registration requirements by pitching non-traditional investments such as purchasing life insurance policies from terminally ill patients for a percentage of the face value (viatical settlements), pay telephone and ATM leasing contracts, and other investment contracts with the promise of "limited or no risk" and high returns.
4. Promissory Notes
Promissory notes are often sold by independent insurance agents and issued by little known or nonexistent companies promising high returns. Empty promises can leave these notes worth less than the paper on which they are printed. High rates of promised interest mean high risk. The lack of reliable financial information from the seller of notes is a red flag. These notes can become vehicles for fraud when the issuer of the note has no intention or capability of ever delivering the returns promised by the sales person.
5. Senior Investment Fraud
Because of their access to a lifetime of savings, seniors continue to face investment fraud by con artists peddling unsecured promissory notes, viatical settlements, and other investments that are either fraudulent or unsuitable for them based on their particular financial needs. To learn more, visit NASAA’s Senior Investor Resource Center.
6. High-Yield/Prime Bank Note Investment Schemes
Con artists lure investors with promises of triple-digit returns through access to "risk-free guaranteed high-yield instruments," prime bank/offshore trading schemes, or something equally deceptive. For more information, see the Washington State Department of Financial Institutions page entitled "Investment Scams, Frauds, & Con Artists."
7. Internet Fraud
Stock promoters are using online "boiler rooms," instant messaging, and fake websites to lure investors into "pump-and-dump" stock schemes.
8. Affinity Fraud
Con artists are increasingly targeting religious, ethnic, cultural, and professional groups. Investing solely on the basis of affiliation can be dangerous to one’s financial health.
9. Variable Annuity Sales Practices
Senior investors should beware of the high surrender fees and steep sales commissions agents often earn when they move investors in and out of variable annuities.
10. Oil and Gas Scams
With oil having topped $100 a barrel, regulators warn that con artists may renew schemes promising quick profits in oil and gas ventures.