Secretary of state names top 10 investor threats

The ranking of the top 10 threats to Missouri investors is based on the order of prevalence and seriousness, according to a news release from Carnahan’s office. The list was compiled in conjunction with an annual survey of members of the North American Securities Administrators Association.

1. Ponzi schemes. These schemes, also known as pyramid schemes, essentially rob one person to pay another. Initial investors are paid off with borrowed money from new investors. As long as a steady flow of new investors continues, there is money to pay off old investors. But when new investors stop participating, initial investors don’t receive promised payouts.

2. Sale of securities by unlicensed individuals. All individuals selling securities must be registered with the Securities Division of the Secretary of State’s office. Those that aren’t registered may not be qualified to sell securities, and they may not disclose important information.

3. Variable annuities. Variable annuities are sold by life insurance companies and guarantee an income stream for life. However, because they are variable, an investor may not receive the expected returns and may have to pay large surrender charges to get the money back and liquidate the annuity. Also, brokers often charge high fees for annuities. Variable annuities make sense only for consumers willing to invest for 10 years or longer, but they are not suitable for many retirees who cannot afford to lock up their money for a long period of time.

4. Senior investment fraud. Con artists tend to prey on elderly investors because of their lifetimes of saving and their trusting nature. Seniors should beware.

5. Affinity fraud. These scams exploit the trust and friendship that exist in groups of people who have something in common, such as religious, ethnic, cultural and professional groups. Con artists frequently are – or pretend to be – members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme and the leaders often become unwitting victims themselves.

6. Unregistered investment products. All investments must be registered with the Securities Division of the secretary of state’s office. Con artists bypass stringent state registration requirements to pitch viatical settlements, pay telephone and automated teller machine leasing contracts and other investment contracts with the promise of limited or no risk and high returns. Unregistered investments have not been properly examined to ensure that they are sound investments.

7. Promissory notes. Con artists scam investors with false promises of high returns on what might appear to be a plausible business opportunity.

8. High-yield investment schemes. Perpetrators claim to have unique access to this secret market. Supposedly, bank securities traded between “top” or “prime” banks can be bought at a discount and sold at a premium, yielding greater-than-market returns with no risk. In reality, no such market exists.

9. Internet fraud. Companies lure investors by telephone, Internet and personal contact to buy their stock for low costs, guaranteeing that the price of the stock will rise significantly in upcoming weeks. When the company lures enough investors, to raise the price of the stock, the company dumps its shares and makes money on the stock. Essentially, these are known as pump-and-dump scams.

10. Oil and gas scams. Many scam artists play on the news of rising oil and gas prices to encourage investments in their phony operations. “Oil company” representatives call investors for money to start drilling on property where oil supposedly exists. The investor gives the “oil company” money and never hears from the representatives again.

Penny stocks, private placements and investment seminars were cited as dishonorable mention scams for the listing.

Carnahan urges investors to ask plenty of questions and to contact the Securities Division of her office for additional information about any investment product, broker or adviser before making an investment.

“One phone call can save a lot of money and heartache,” Carnahan said in the release.

For additional information, investors also may call the toll-free investor hotline at (800) 721-7996 or visit www.sos.mo.gov.

“Investors should have their guard up any time anyone offers an investment opportunity,” Carnahan added. “It pays to remember that if an investment sounds too good to be true, it usually is.”