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.