Hampton urged investors to contact DISB with any questions about an investment product, broker or adviser, before making an investment. "One phone call can save a lot of money and misery," he said. Although the traps below are listed alphabetically, Byrne identified personal information scams, oil and gas investment fraud, and prime bank schemes as the greatest potential threats to investors this year.
1. Affinity Fraud. Members of closely knit religious, political or ethnic groups are targeted frequently by con artists who identify with the values and interests of the groups. This tactic seeks to substitute an emotional appeal for careful analysis and critical thought.
2. Churning. An abusive sales practice in which unethical securities professionals make more trades than necessary or even meaningless trades, to generate commissions. Most churning occurs where a broker has discretion to trade the account.
3. Equity Indexed Certificates of Deposit. Equity Indexed CDs are not FDIC-insured, bank-issued certificates of deposit with guaranteed principal and interest. These hybrid securities products offer an interest coupon payment or return that is based on a stock market index, usually the S&P 500. They are dependent on the performance of the stock market. A declining stock market means the possibility of no return on your investment.
4. Oil and Gas Investment Fraud. High oil prices mean oil and gas scams will continue to attract victims. Oil and gas deals are complicated investments that often require a minimum deposit of thousands of dollars. Increasingly, these deals are being promoted via the Internet with claims of attractive tax advantages. Overall, these deals are highly risky, but the lure of high profits often proves irresistible to investors.
5. Personal Information Scams. Con artists often convince the victims to divulge personal financial information by positioning themselves as "senior specialists" or offering to prepare a living will or a living trust. They may offer to help senior citizens qualify for prescription benefits by preparing forms. In the guise of filling out forms, the scamster may ask unnecessary questions about personal financial assets, information that provides a comprehensive laundry list of what is available for the taking.
6. Prime Bank Schemes. People who hold strong anti-tax beliefs are often targets for scams that promise high-yield, tax-free returns. Sometimes these are said to result from off-shore trades of bank debentures. Investors are told that only very wealthy people can get the benefit of these programs but the promoter is able to make it available to the victim. There are no such programs, debentures or high-yield trades. Once the seller has your money, it's gone "off shore" forever.
7. Pump and Dump Schemes. Unethical broker-dealers frequently pump up the value of low-priced securities traded on the NASDAQ pink sheets and then dump the stock after naïve investors have purchased the stock at inflated prices. The balloon breaks when the promoters no longer maintain the myth that there is value in the shares and investors are left holding worthless shares.
8. Recovery Rooms. Scam artists buy and sell the names and financial information of victims who have lost money to recovery room operators who promise, in return for a fee, that the victim must pay in advance, to recover the money lost in a worthless investment. If you have been the victim of a fraud, never give out your credit card or other personal information to someone who contacts you with a promise to recover your money.
