Almost every case that leads to a criminal prosecution or agency action is with an unlicensed person selling securities. To verify that a person is licensed or registered to sell securities, call us. If the person is not registered, don’t invest. If all people followed this advice, it would end most securities fraud.
Unlike multi-level marketing companies, pyramid schemes are fraudulent because compensation is primarily derived from the fees paid by new recruits to the scheme. Participants have to recruit others to the plan to make money. As participants join, additional people must be recruited so that current participants can be paid. The pyramid eventually collapses because participants exhaust the pool of people available and willing to join. Often goods or services are offered in an attempt to appear legal. If more money is raised by recruiting than by sales, be wary.
You can read the statute that outlaws pyramid schemes in Montana here.
Investment fraud that involves the payment of returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business.
Affinity Group Fraud
Many scammers use their victim’s religious or ethnic identity to gain their trust – knowing that it’s human nature to trust people who are like you – and then steal their life savings. From “gifting” programs at some churches to foreign exchange scams targeted at Asian Americans, no group seems to be without con artists who seek to exploit others for financial gain.
Debt instruments that promise a return of principle and interest. It is called a promissory note because it is a promise to repay a loan. Promissory notes are only as good as the person or company making the promise. Often interest rates offered are unusually high and guarantees of little or no risk are a lie.
Scammers use the wide reach and supposed anonymity of the Internet to “pump and dump” thinly traded stocks, peddle bogus offshore “prime bank” investments and publicize pyramid schemes.
These higher-yielding certificates of deposit won’t mature for 10 to 20 years, unless the bank, not the investor, “calls” or redeems them. Redeeming the CD early may result in large losses – upwards of 25 percent of the original investment. In Iowa, for example, a retiree in her 70s invested over $100,000 of her 97-year-old mother’s money in three “callable” CDs with 20-year maturities. Her intention, she told her broker, was to use the money to pay her mother’s nursing home bills. Regulators say sellers of callable CDs often don’t adequately disclose the risks and restrictions.
Originated as a way to help the gravely ill pay their bills, these interests in the death benefits of terminally ill patients are always risky and sometimes fraudulent. The insured gets a percentage of the death benefit in cash and investors get a share of the death benefit when the insured dies. Because of uncertainties predicting when someone will die, these investments are extremely speculative.
Prime Bank Schemes
Scammers 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 North Dakota, state securities regulators are alleging a small group of salesmen, including a local pastor, used religion and family ties to bilk investors out of $2 million in a prime bank scam.
Often the people getting rich are those running the seminar, making money from admission fees and the sale of books and audiotapes. These seminars are marketed through newspaper, radio and TV ads and “infomercials” on cable television. Regulators urge investors to be extremely skeptical about any get-rich-quick scheme.
Call the Commissioner’s hotline at 800-332-6148