State identifies most common investment scams

Regardless of economic conditions, Missourians must always be on guard to protect their hard-earned dollars.

Our securities division has identified the top 10 investment scams. A few of the items can be legitimate securities, but they become illusory investments when unscrupulous con artists decide to use them to commit fraud.

Unlicensed individuals selling securities. Con artists often use high commissions to lure independent insurance agents into selling investments they may not understand.

The vast majority of Missouri insurance agents are honest, responsible professionals, but you should always verify that a person is licensed or registered to sell securities. If a seller is not registered, do not invest.

Unscrupulous stockbrokers. The declining stock market has caused some brokers to resort to fraud.

Analyst research conflicts. In May, the New York attorney general entered a settlement agreement with Merrill Lynch over whether the firm had issued misleading research reports.

I am still studying this settlement to determine whether it is fair to Missouri investors, but it does raise concerns about analyst research that is tied to investment banking.

Promissory notes. Independent insurance agents often sell short-term debt offering high interest rates (up to 15 percent per month) from little known or nonexistent companies. These sales usually are illegal and often fraudulent.

Prime banks. Scam artists promise triple-digit returns through access to the investment portfolios of elite banks. Purveyors often target conspiracy theorists, promising "secret" investments used by the Rothschilds or Saudi royalty.

Viatical investments. Originally a way to help the gravely ill pay for care, investments in death benefits are always risky and can be fraudulent.

The investors often invest in an agreement with a company to locate a profitable share in a death benefit, so that the insured receives a percentage of the death benefit in cash, but has little involvement in selecting the viatical.

Affinity fraud. Many con artists use a victim's religious or ethnic identity to gain trust, and then their life savings. No group seems to be immune.

Some charitable gift annuities. These are transfers of cash or property to a charitable organization.

The value of the annuity is less than the value of the cash or property, with the difference constituting a charitable donation.

Most charitable annuities are legitimate investments, but be cautious of organizations that provide only limited amounts of information.

Oil and gas. These scams chase headlines about predictions of oil shortages and higher energy prices.

In recent months my office has been involved in several legal actions with these types of con artists.

Equipment leasing. The vast majority of equipment leases are legitimate. But thousands have been bilked on pay phones, ATMs and Internet kiosks.

Typically, a company sells equipment through a middleman, agreeing to lease back the equipment and service it for a fee. High sales commissions and unrealistic promises of earnings doom these projects.

If something sounds too good to be true, it probably is. I strongly encourage all Missourians to contact our Investor Hotline at 1-800-721-7996 to get facts, check registrations and reduce the risk of financial loss. You may also find investment tips on our Web site: www.sos.state.mo.us.