Caution essential for protection against investment scams

When the economy is weak, consumers should be on the lookout for con artists who come on strong with enticing investment offers, according to the Better Business Bureau.

Low interest rates and slumping stocks have many consumers looking for alternative investments, but the BBB notes that this type of economic climate is ripe for investment scams that typically start with offers of "guaranteed" big returns, business opportunities and other "no-risk" deals.

Scams

The BBB, along with the Federal Deposit Insurance Corporation, is making sure consumers are aware of several investment scams now luring victims in the marketplace.

Fraudulent sales of stocks, bonds and other financial instruments.

Consumers should beware of age-old "Ponzi" and "pyramid" schemes, in which scam artists promise high returns and use the money of some investors to pay off other investors, or life insurance agents who have overstepped their licenses to sell stocks, bonds and other securities. Also, consumers should note that investment seminars promising easy money are suspect, because many times they only enrich the sponsors.

False or misleading sales of certificates of deposit.

The trusted bank CD issued by FDIC-insured institutions has long been considered to be among the safest financial investments available because of the deposit insurance protection of up to $100,000.

However, according to the BBB, criminals or unscrupulous brokers who use improper or confusing disclosure statements or outright fraud increasingly are victimizing unsuspecting consumers. There also have been reports of Internet or newspaper advertisements claiming to offer unusually high interest rates for CDs from banks that investors later learned were bogus.

Promissory note fraud.

A promissory note is an interest-paying IOU generally issued by companies wanting to raise cash to finance operations. Investors in these notes tend to be other corporations, not consumers, because a sophisticated analysis is recommended before putting up money.

However, criminals have preyed on unsuspecting consumers by offering guaranteed high rates of return on promissory notes that are bogus, often for nonexistent companies; investors soon discover that their entire investments are lost.

The Nigerian Scam.

This fraud has been around since the 1980s and has bilked investors out of billions of dollars.

It generally works like this: A consumer will receive an unsolicited fax, e-mail or letter from someone claiming to be a foreign government official, business executive or citizen asking for help in one of many scenarios. The letters usually offers a lucrative award or business opportunity if the consumer will allow the perpetrators to "park" funds in a U.S. bank account. But first, the consumer will be required to pay various types of government "fees" and "taxes." For those who comply, their money is gone forever. The fraud is widely know as the Nigerian Scam because it originated in Nigeria and still flourishes there, although scam artists in other countries are copying it.

Protection

To avoid being scammed by these and other fraudulent investment offers, the BBB suggests the following:

Individuals should be wary of unsolicited investment offers and never divulge personal information or account numbers in response to unsolicited phone calls or letters. If a sales pitch includes promises of guaranteed profits or yields that far exceed traditional investments, consumers should be especially skeptical.

Consumers should be sure they're dealing with legitimate, reputable marketers. Prior to sending money or personal information to an unfamiliar person or company, consumers should find out as much as they can about the marketer. By contacting the Better Business Bureau, consumers can obtain a reliability report on the company.

Consumers should get key details in writing and independently research the investment that is being considered. Reputable companies will be happy to answer questions or provide requested documentation. If a company will not disclose information in writing, do not invest.