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Investment Scams on the Increase


1.  Tactics Used by Scam Artists.

2.  Today’s Top 10 Investment Scams.

3.  Questions YOU Should Ask.

4.  Foreign Currency & Precious Metals Dealers.

5.  Contact Information and Important Links.


With the stock markets down for the third consecutive year, with CD and other “safe” investment yields at or near all-time lows, and with certain other investment options struggling as well, investment scams are on the increase . Unfortunately, many people continue to fall for these schemes. In this issue, we’ll look at some of the more common investment scams and give you the information you need to avoid them.

Generally speaking, American consumers are a savvy bunch. We tend to make sound, well informed buying decisions when it comes to our capital purchases such as a new car or a home. We know what we want and we know what to look for to avoid being taken. But when it comes to investments, we are not always so careful. The business of investment fraud, swindles and scams is alive and thriving, especially with the advent of the Internet. Securities fraud costs Americans billions of dollars each year, state securities regulators estimate.

Tactics Used by Scam Artists

No matter what their particular scam, swindlers typically use four basic tactics specifically designed to pique your interest and gain your trust. The first tactic is an expectation of large profits. Securities swindlers have traditionally played upon greed. Some scam artists boast of huge profits to be made. Yet more often, the scammers talk about profits that are just large enough to make you interested, but not skeptical. (You can easily earn 15-20%.)

The second tactic used is claiming that there is low or no risk attached to the investment. The desire to get something for nothing, or almost nothing, is strong. Some swindlers are so bold as to claim that there is NO risk to their “investment” or that returns are guaranteed. (Our investment offers equity returns with CD risk.)

The third tactic used by investment scammers is a sense of urgency. You should never feel pressured to invest. Swindlers will almost always say that it is essential that you invest right away, or that the offering is very limited or may be closing soon. They may try to make you feel as though you have been selected for a rare and special, but limited time, opportunity. ( Invest today; delaying could reduce your profit.)

The fourth tactic often used is confidence. Scam artists are going to be very confident of what they are selling you and of all the money you are going to make. They will also try to gain your confidence and your trust. Most swindlers like to talk a lot, so you don’t have time to think of, and ask, difficult questions (I’ll tell you what questions to ask below).

Today’s Top 10 Investment Scams

Investment scams have been around as long as there have been investors and have taken many forms over the years. Some have become classics like ponzi/pyramid schemes, promissory notes and prime bank schemes . In today’s volatile markets, investors have expressed renewed interest in non-traditional investments and investments that are “safe.” This has provided the investment scam artists with a rich and fertile environment.

Here is a list of the current top 10 investment scams released by State Securities Regulators.

1. Unlicensed individuals selling securities.  In order to sell securities legally, one must be registered. Do not believe that a stranger on the phone is registered just because he (or she) says he is. To verify that a person is licensed or registered to sell securities, call your state securities regulator. If the person is not registered, don’t invest.

Also, don’t assume that someone is registered to sell securities just because they sell insurance. In many states, the majority of  “cease and desist” orders issued by the securities divisions are targeted at insurance agents who sell securities without the proper license. Most were independent life insurance agents.

2. 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. In Texas, an Indian immigrant who taught Sunday school took fellow Indian parishioners – roughly 40 families in all – for over $1 million.

3. Payphone and ATM sales. In March of last year, 25 states and the District of Columbia announced actions against companies and individuals – many of them independent life insurance agents – that took roughly 4,500 people for $76 million selling coin-operated, customer-owned telephones. Investors leased payphones for between $5,000 and $7,000 and were promised annual returns of 15% or more. Regulators said most of these investments appeared to be nothing but Ponzi schemes (see below).

4. Promissory notes. This scam involves short-term debt instruments issued by little-known, or sometimes non-existent, companies that promise high returns – upwards of 15% monthly – with little or no risk. In Indiana, 18 elderly investors lost some $1.4 million in a promissory note scam. The scammers in this case, who diverted the money to offshore bank accounts, even knelt in prayer with their victims to gain their trust.

5. Internet fraud. 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. Roughly half the states now have Internet surveillance programs that watch for fraud and investigate investor complaints. Regulators urge investors to ignore anonymous financial advice on the Internet and in chat rooms.

6. Ponzi/pyramid schemes. Always in style, these swindles promise high returns to investors, but the only people who consistently make money are the promoters who set them in motion, using money from one group of investors to pay off others. Inevitably, the schemes collapse. Ponzi schemes are the legacy of Italian immigrant Charles Ponzi. In the early 1900s, he took investors for $10 million by promising 40% returns from arbitrage profits on International Postal Reply Coupons.

7. “Callable” CDs. These higher-yielding certificates of deposit won’t mature for 10-20 years, unless the bank - not the investor - “calls,” or redeems, them. Redeeming the CD early may result in large losses – upwards of 25% of the original investment. Regulators say sellers of callable CDs often don’t adequately disclose the risks and restrictions.

8. Viatical settlements. Originated as a way to help the gravely ill pay their bills, these interests in the death benefits of terminally ill patients are almost 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 the uncertainties in predicting when someone will die, and other factors, these investments are extremely speculative. In a new twist, Pennsylvania regulators say “senior settlements” – interests in the death benefits of healthy older people – are now being offered to investors. There are some reputable viatical settlements firms out there, but we generally recommend staying away from this type of investment.

9. 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.

10. Investment seminars. So-called investment seminars have become very popular around the country. Yet often the only people getting rich are those running the seminars, making money from admission fees, the sale of trading systems, books, audiotapes, etc. These seminars are marketed through newspapers, radio and TV ads, “infomercials” on cable television and the Internet.  

As you can see, investment scams can be found everywhere. Scammers use direct mail, the telephone, phony newsletters, seminars and, of course, the Internet.

Questions YOU Should Ask.

You may be wondering how you can avoid being taken by an investment huckster. The simple answer is, ask questions! With any investment, whether promoted in person, by mail, telephone or on the Internet, a wise investor should ALWAYS slow down, ask questions and get written information. Also, be sure to take notes so that you have a record of what you were told in the event of any future dispute.  As the old saying goes, a short pencil is better than a long memory!

Many investment scammers hate questions and will be evasive and as vague as possible. This is a huge red flag. Others will be pushy and use high-pressure sales tactics, the goal being to separate you from your money as quickly as possible. A legitimate financial professional, however, will welcome your questions and ask several qualifying questions of his own. He will also have no hesitation about providing any written or background material you request.

The key is, if ANYTHING about the person makes you the least bit uncomfortable, or if the investment sounds too good to be true, JUST SAY NO!

10 Questions To Ask

Here is a list of 10 questions from the Securities & Exchange Commission that every potential investor should ask.

  1. Is the investment registered with the SEC and the state securities agency in the state where I live or is it subject to an exemption?
  2. Is the person recommending this investment registered with my state securities agency? Is there a record of any complaints about this person?
  3. How does this investment match my investment objectives?
  4. Where is the company incorporated? Will you send me the latest reports that have been filed on this company?
  5. What are the costs to buy, hold, and sell this investment? How easily can I sell?
  6. Who is managing the investment? What experience do they have?
  7. What is the risk that I could lose the money I invest?
  8. What return can I expect on my money? When?
  9. How long has the company been in business? Are they making money, and if so, how? What is their product or service? What other companies are in this business?
  10. How can I get more information about this investment, such as audited financial statements?

Using the “EDGAR” Database

You should also take the time to do a little research. If applicable, start with the SEC’s EDGAR database. All US companies with more than 500 investors and $10 million in net assets, as well as all companies listed on the major stock exchanges, can be found on the EDGAR. You can go to where you will find a tutorial on how to use the system.

There is a wealth of information on companies listed on the EDGAR. You can download financial reports for free. You can also find out if there are any regulatory actions or litigation pending. Unfortunately, many companies operated by, or promoted by, scammers are not listed on this database. As a result, it is always a good idea to check with your state securities regulator.

A Word About Foreign Currency Dealers

The foreign currency markets are not regulated like the stock, bond and futures markets. It is not currently a requirement that a person, or a company, be registered with any federal or state regulatory agency in order to deal in foreign currencies. As a result, there has been a great deal of fraud and investor abuse in this area, especially among smaller, locally owned “forex” dealers.  This is not to say that all foreign exchange dealers are crooked. Most aren’t. Regardless, if you are going to deal in foreign currencies, I would recommend that you use a large, nationally known firm.

The same goes for precious metals dealers. Many firms that sell gold, silver, other precious metals and/or numismatic coins are not registered with any regulatory agencies. Be very careful who you deal with in this area.

A Word About Trading Systems

As you may be aware, there are countless “systems” out there for trading stocks, bonds, currencies, futures, etc. Trading systems come in all shapes and sizes – books, tapes, manuals, telephone “hotlines,” fax services, etc. – just to name a few.  Here, too, many people promoting these services are not regulated.

There are two common threads with most of these systems: 1) they are always promoted to be the greatest thing going and will make you tons of money; and 2) I’ve never seen investors achieve remotely the kind of returns that are touted.

When it comes to these highly promoted investment systems, I suggest you ask yourself one simple question: If it works so great, why are they selling it??  Why wouldn’t they keep it secret and make all that money for themselves?  My observation is that some of these systems might have actually worked, probably a long time ago, but when they stopped working, promoters decided to sell them to the public.

Conclusions – If It Sounds Too Good. . .

This E-Letter does not begin to address all of the types of investment scams that are out there. New ones are created every day. Many investors who get burned are too embarrassed to tell anyone or report the scammers to the regulators. Even if they do, many scammers move from place to place, before the regulators can catch up with them.

Make sure that anyone who is attempting to sell you securities, or most other investments, is properly registered to do so. If they are registered, you can contact the appropriate agency (see below) and/or your state securities department and inquire as to whether they have a history of regulatory problems.

As noted above, key is, if ANYTHING about the person or the investment makes you the least bit uncomfortable, or if the investment sounds too good to be true, JUST SAY NO!

My personal rule is, I don’t buy anything on the phone. Because I subscribe to so many publications, my name is on hundreds of mailing and telemarketing lists. I used to get tons of phone calls at my home. Last year, I subscribed to a service from Southwestern Bell called “Privacy Manager.” Now, if I get a call at home from an “anonymous” number, the caller is required to identify who it is, and then we can decide if we wish to take the call. You might check with your phone company to see if they have such a service.

For The Record

My company, ProFutures Investments, is registered with the Securities & Exchange Commission (SEC) as an Investment Advisor and with the U.S. Commodity Futures Trading Commission (CFTC). We are also members of the National Association of Securities Dealers (NASD) and the National Futures Association (NFA). We are also registered in all 50 states.

Finally, we have never sold, rented or otherwise shared any of our clients’ information with anyone. Some investment firms sell or rent their clients’ names and other information to outside parties. We do not! Never have, never will.

I hope this information on investment scams has been helpful. If you are looking for professional advice on your investments and financial planning, we will be happy to help you in a straightforward, no-pressure way that fits your goals and financial situation.  Feel free to call us at 800-348-3601.

Best regards,

Gary D. Halbert

Contact Information & Important Links

These are the names, address and phone numbers of the major regulatory agencies. Keep them handy.

Commodity Futures Trading Commission, 2033 K St., N.W., Washington, D.C. 20581, 202.254.6387.

Federal Bureau of Investigation, Justice Department, 9th St. & Pennsylvania Ave., N.W., Washington, D.C. 20535, 202.234.3691.

Federal Trade Commission, 6th St. & Pennsylvania Ave., N.W., Washington, D.C. 20580, 202.326.3650.

National Association of Securities Dealers 1735 K St., N.W., Washington, D.C. 20006, 202.728.8044.

National Futures Association, 200 W. Madison, Suite 1600, Chicago, IL 60606-3447, Toll Free: 800.621.3570, In IL: 800.572.9400.

Securities and Exchange Commission, 450 Fifth St., N.W., Washington, D.C. 20006, 202.728.8233.

United States Postal Service, Chief Postal Inspector, Room 3021, Washington, D.C. 20260-2100, 202.268.4267.

Here are some important links to help you stay on top of investment fraud.

List of All State Regulators

SEC Enforcement Page

EDGAR Database

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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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