COMMON INVESTING SCHEMES
Most cases of criminal prosecution involves an unlicensed person selling securities. Call CSI to verify a person is licensed to sell securities. Avoid potential securities fraud by verifying the license/registration status of a financial professional before conducting business with that person.
Pyramid schemes are fraudulent because compensation is primarily derived from the fees paid by new recruits to the scheme, rather than actual profits. Current participants can only receive payment through the recruitment of new contributors. As individuals join, additional people must be recruited so that current stakeholders can be paid. The pyramid collapses when current partakers exhaust the recruitment pool. Exercise extreme caution if more money is earned through recruitment than sales.
A Ponzi scheme is a securities fraud that involves the payment of investment 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, fraudsters focus on attracting new money to make promised payments to earlier-stage investors thereby creating the false appearance that investors are profiting from a legitimate business. If an opportunity sounds too good to be true, it probably is.
Many charlatans use religious or ethnic identities to gain victim trust. Impostors know that it’s human nature to trust similarly situated people. They steal their victim’s life savings through religious “gifting” programs or foreign exchange scams that target specific demographics of people. No group of people is excluded from exploitation by con artists seeking financial gain from others. The Montana CSI has prosecuted affinity fraud cases that have affected people from all denominations, cultural backgrounds, professions, classes.
A promissory note is a debt instrument that contains a written promise by one party to pay another party a definite sum of money. Promissory notes can be risky if they’re not issued by a traditional lender. They can also be subject to higher interest rates. Investors should be cautious and conduct in-depth research before investing in promissory notes. Promissory notes created for investment purposes are a security that is required to be registered.
Internet fraudsters use the world wide web to facilitate scams such as “pump and dump” schemes (illegally boosting a security’s price through false, misleading, or greatly exaggerated statements to make a quick profit); bogus “prime bank” investments (false claims regarding “special access” to investments reserved for banks or other financial institutions that promise a high return in a short period of time with little or no risk); and to publicize pyramid schemes.
A callable certificate of deposit (CD) is a certificate of deposit that allows the issuer the right to “call” or redeem the CD before its maturity date. Callable CDs are higher yielding certificates of deposit. The typical mature date for these CDs is within 10 to 20 years unless the issuing bank exercises its right to “call” (redeem) the CD before its maturity date. Early CD redemption may result in large losses. Regulators say sellers of callable CDs often do not adequately disclose the risks and restrictions. Investors should read the specific terms of the call premium in the issuer’s disclosure statement before deciding whether a callable CD is an appropriate investment choice.
A viatical statement is an arrangement where a person with a terminal illness to sell their life insurance policy to a third party for less than its mature value, to benefit from the monies while they are still living. The new owner of said policy pays the future premiums and collects the full death benefit when the person insured dies. There is a chance of tax implications. Investment in viatical settlements is considered high risk due to the speculative nature of predicting when the original policyholder will die. Viatical settlements are vulnerable to fraud including Ponzi schemes and fraudulent life expectancy evaluations.
In Prime Bank Schemes, scammers promise investors triple-digit returns with minimal risk by convincing investors that they have access to the investment portfolios of the world’s elite banks. Impostors promise access to the same “secret” investments made by the Rothschilds or Saudi royalty.
Metaverse is a term generally referring to stand alone or interconnected online virtual worlds that provide users an immersive experience by using virtual or augmented reality technologies using digital representations of themselves, commonly known as “avatars.” Real-world metaverse scams are already here and can include illegal stock promotions, pump-and-dump campaigns, or Ponzi schemes with scammers offering investments in metaverse-focused companies or technologies. Scams inside metaverse virtual worlds can be like real-world scams, but they are likely to include virtual components such as crypto assets or virtual real estate. Examples of metaverse scams include phishing, fake social media profiles, impersonating celebrity endorsements and “rug pulls.”
Fraud schemes carried out using cryptocurrency (e.g. Bitcoin, Ethereum, Dogecoin, Litecoin, etc.) often involves a get-rich-quick hook that targets investors with little understanding of cryptocurrency. Cryptocurrency scams are deceptive schemes that steal not only a person’s digital currency, but can also steal their personal information. In a 2018 case, a cryptocurrency developer claimed to have contracts with large corporations such as Apple and Amazon and told potential investors they could mine their own token if they bought the developer’s software and hardware. The claims were fraudulent, and Montana CSI acted quickly to shut down the company’s operations in Montana. In another case, when the price of various cryptocurrencies plummeted, many crypto traders went bankrupt and did not have enough money to pay the investors who attempted to liquidate their assets.
Promoters of precious metal purchases often take high commissions (sometimes as much as 40%), without disclosing these costs and without giving the purchaser actual possession of the metal. In a recent case, over 40 states and the CFTC took action against a company who had encouraged persons to set up self-directed IRA’s to fund the purchase of these metals. The investors did not have access to the metals, and the firm had received an undisclosed 30% commission from the sale. Precious Metal scams can include tactics like fake products, misleading IRA rollovers, and high-pressured sales. If it seems to be too good to be true, it probably is.
Investment seminar scams use deceptive marketing, high pressure sales, and false promises to sell overpriced and worthless products. Many times, they offer you a freebee to come and listen to their presentation. High pressured salesmen market to potential investors through newspaper, radio, TV advertisements, infomercials, mailers, and social media platforms often targeting elderly people by advertising free dinners. The attendants are encouraged to liquidate safe investments to buy whatever product is being pitched. Hosts get rich through admission fees and sales of books and/or audiotapes. Montana CSI urges potential investors to be extremely skeptical about any get-rich-quick scheme and to confirm the host is registered with the CSI.