The financial advisor rating firm Paladin Research & Registry assembled a list of the top 10 investment scams investors are facing today. If you are involved in any of these potential scams, the investment attorneys at Gana LLP may be able to help you.
1. Ponzi Schemes
Ponzi schemes came in first-place for having stolen more money than any other type of scam. A Ponzi scheme is a fraudulent investment scam where the scammer promises a high rate of return with little or no risk to investors. Ponzi schemes generate returns for investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. The Ponzi scheme unravels when no more new investors are willing to invest and older investors demand the return of their money. The nature of Ponzi schemes (or pyramid schemes) requires investors (who believe they have a strong investment) to tell friends, family and associates about the investments. The influx of new investors provides scam operators with the assets needed to meet the withdrawal requests of the early investors.
2. Promissory Notes
A promissory note is a type of debt, similar to a loan or an “IOU,” that a company or individual may issue to raise money. Typically, an investor agrees to loan money to the company or person for a fixed period of time. In exchange, the company promises to pay the investor a fixed return on his or her investment, typically principal plus annual interest.
While promissory notes can be legitimate investments, those that are marketed broadly to individual investors often turn out to be scams. Promissory notes generally target seniors who need high interest rates and low risk to fund their retirement years. These are seemingly perfect investments until investors learn there were no actual investments.
3. Private Placements
A “private placement” is an offering of unregistered securities to a small or limited pool of investors. In a private placement, a company sells shares of stock or interest in the company, such as warrants or bonds, in exchange for cash from the investor.
Private placements are regulated by a series of U.S. Securities and Exchange Commission rules known as Regulation D, or Reg D. Under “Reg D”, companies can issue varying amounts of securities based on the type of investor they are selling them to—accredited or non-accredited investors—without registering those securities with the SEC.
4. Currency Scams
Trading currencies has exceptional complexity. It is an exotic undertaking with the potential of producing high returns, making them popular with criminal scammers.
5. Investing in Precious Metals
Most investors do not visit the company that is supposedly storing the metals and take the word of investors that the mine is producing great results. This results in investors buying an interest in a gold mine that does not produce gold.
6. Life Settlements
Life settlements (or viaticals) may take advantage of vulnerable seniors who are terminally ill and investors who invest in fake life settlement programs. “It is very difficult to predict when someone is going to die. Rising longevity impacts returns. And, your money is tied up for years.”
7. Unregistered Investments
Financial documents may be altered to appear real, giving the allusion that securities have been properly registered with the regulatory agencies when in reality they are unregistered securities for fake companies.
8. Prime Bank Scams
Prime bank scammers give investors a sense that they are getting special access to programs that otherwise are reserved for the ultra-wealthy. The exceptional returns sound real since they are supposedly for ultra-wealthy investors.
9. Investment Seminars
Get rich quick schemes, or “free lunch seminars” are potentially dangerous because many times the only people making money are those who are presenting the seminars. If the presenters had a great idea worthy of making money, they likely would not share it with rooms full of people.
Annuities can be a scam when “financial advisors replace annuities with inferior products so they can generate a new round of commission from your assets.”
At Gana LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.