LANSING - The Office of Financial and Insurance Regulation (OFIR) today released its annual list of traps that cautious investors should avoid when seeking to jump-start their investment portfolios.
“Doing a little homework—before you invest—can pay big returns,” OFIR Commissioner Ken Ross said. “With one call to OFIR, you can verify licensure status and check if any complaints have been filed by other consumers.”
If Michigan investors have any questions or complaints regarding an investment firm, professional or product, they should contact OFIR toll-free at (877) 999-6442.
OFIR’s Top Ten Investor Traps:
Affinity Fraud: Scam artists have found it lucrative to abuse membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Typical affinity groups include religious, ethnic, professional, educational, language, age and any other group with shared characteristics that allow investors to trust members of the group.
Ponzi Schemes: The Ponzi scheme is a house-of-cards swindle in which high returns are paid to initial investors out of the funds of later investors, who end up losing all or most of their money to the promoter.
Gold and Precious Metals: High gold prices have trapped some investors in gold bullion scams in which a seller offers to retain “purchased” gold in a “secure vault” and promises to sell the gold for the investor when it gains in value. In many instances the gold does not exist. Investors have also been harmed by promoters pitching investment pools in precious metal commodities and gold mines.
Oil & Gas Schemes: Regardless of the price at the pump, fraudulent energy promoters continue to capitalize both on interest in the commodity and on oil and gas as investment alternatives to the stock market. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors who cannot afford the risk.
Real Estate Investment Schemes: OFIR has seen a rise in scams disguised as offers to help homeowners caught up in the turbulent housing market “save” their homes or “fix” their mortgages, usually in exchange for a fee paid in advance. Most of these advance-fee offers only generate a quick profit for the con-artist and provide no benefit to the consumer,
Senior Citizen Investment Fraud: Volatile stock markets, low interest rates, rising health care costs, and increasing life expectancy, combined to create a perfect storm for investment fraud against senior citizen investors. Older investors are being targeted with increasingly complex investment scams involving unregistered securities, promissory notes, charitable gift annuities, viatical settlements, and Ponzi schemes all promising inflated returns.
Fraudulent Promissory Notes: Promissory notes are interest-paying investments that serve as an important means by which companies raise capital. Legitimate promissory notes are usually marketed to sophisticated investors that have the resources to research the investment. Unfortunately, there have been many instances of unscrupulous individuals pushing bogus promissory notes. They’re being sold as instruments that guarantee above-market, fixed interest rates, while safeguarding their principal.
Entertainment Investments: These unregistered investments, encompassing a variety of products including movies, infomercials, Internet gambling and pornography sites, promise high returns while offering little disclosure of risk. Michigan consumers may be especially vulnerable to these scams given the state’s recent surge in movie industry activity.
“Off the Books” Deals: “Off the books” sales are an increasingly common threat to investors. Be cautious if your broker offers an investment on the side instead of one sold through his or her employer. These “off the books” investments may not only be illegal, but they can also be especially risky without the oversight and supervision of the broker’s employer.
Unsuitable Investments: What might be suitable for one investor might not be right for another. Securities professionals must know their customers’ financial situation and refrain from recommending investments they have reason to believe may not be appropriate for a customer’s age, risk tolerance and need for access to the money.