SCAMS
TARGETING SENIORS
LEAD LIST OF TOP 5 INVESTMENT SCAMS
With scams targeting senior
citizens leading the list of “Top Five” investment scams for the second
consecutive year, the Department of Commerce’s Division of Securities is
urging seniors and all consumers to take extra care to avoid being
victimized by con artists.
In a time of low interest rates and an
unpredictable stock market, con artists know all investors – but particularly
seniors living on fixed incomes -- are concerned about low performing investment
options. The con artists craft their
pitches as legitimate, safer alternatives and promise “guaranteed” returns
higher than the performance of other investments.
To help investors identify the most
common scams currently being pitched by con artists, the Division of Securities
is warning you to be on guard against the “Top Five” investment scams,
including:
Schemes
targeting seniors. Many
scam artists intentionally target senior citizens. They know that when they combine professional-sounding sales pitches with
extremely polite manners that many people will equate the good manners with
personal integrity. When seniors receive
unsolicited investment pitches, Dye Joyce encourages older investors to say “I’m
not interested” and end the discussion immediately. She says it is better to be considered rude
than to lose your life savings to a con artist.
Securities
sold by unlicensed individuals. Scam
artists often use high commissions to entice independent insurance agents and
others into selling investments they may know little about, such as promissory
notes. The scam artists instruct their
sales force, who can exploit existing relationships with their clients, to
promise high returns with little or no risk.
Investment contracts. Investment contracts are a broad category of
securities in which citizens have recently have been scammed. An investment contract exists when a portion
of the initial investment is subjected to the risks of the business and there
are representations that the investor will receive a benefit over and above the
initial investment. The investor does
not receive the right to exercise practical and actual control over the
managerial decisions of the business. One type of investment contract recently
marketed in Ohio involves investors buying units and then leasing them back to a
service provider, such as with Web booth kiosks, pay telephones or water
treatment systems. Salespeople often
mislead investors when making their pitch by telling them these investments are
not securities.
Promissory notes. Promissory notes are
short-term debt instruments. Investors
should avoid notes promising high returns – sometimes more than 12 percent
monthly – from little known companies. During
the last four years, Ohio prosecutors have pursued criminal cases against 34
defendants involving the sale of promissory notes to Ohioans that have resulted
in 29 convictions. Cases involving five
defendants are still pending. In
addition, the Division of Securities has pursued three civil cases in various
Common Pleas courts and brought approximately 167 administrative actions during
the past five years involving promissory note sales to Ohio
investors.
Internet investment pitches. Con artists can
easily design professional-looking web sites to give the appearance of a
legitimate business. Investors need to
be vigilant in protecting themselves against Web-based scams and ignore
anonymous financial advice on the Internet and in chat rooms. Through its Internet Monitoring Program, the
Division searches the Internet for offerings available to Ohioans to ensure
compliance with Ohio’s securities laws.
Last month,
the Securities Investor Protection Corporation (SIPC) issued a warning about a
new fraud scheme to investors and brokers. Con artists are apparently posing as actual brokerage firms and licensed
salespersons by setting up a web site using the brokerage firm’s name and
possibly its correct mailing address. This makes it extremely difficult for investors to know if they are
receiving online communications from the licensed firm and its salesperson, or
from an imposter. Before investing
through the online contact, prospective investors should ask for and receive a
prospectus or private placement memorandum. They should also resist efforts to pressure them into making a quick
decision about the investment.
“Just because
an investment opportunity is online doesn’t mean the ground rules for investing
change. Investors should investigate
before they invest,” said Dye Joyce. The
Commissioner also recommended that investors use third-party resources, such as
a telephone book, to contact the business rather than contacting the company
through the information provided in the online solicitation. “By slowing down and obtaining more
information about the investment, you are less likely to fall victim to a scam,”
she said.
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