Common Investing Scams
Unlicensed individuals
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.
Pyramid Schemes
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.
Ponzi Schemes
Investment fraud 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.
Promissory Notes
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.