AVOIDING INVESTMENT AND FINANCIAL SCAMS:
The golden rule for avoiding investment scams has long been, "If it seems too good to be true, it probably is." Yet Americans still are stung for millions of dollars every year by con artists offering investment deals that are, literally, too good to be true. The growth of the internet has compounded the problem as access to these scams has increase dramatically.
The following are several common investment scams, updated for the 2000s, and what you can do to avoid them.
Internet Scams. It seems like daily we get information on how to get rich "spammed" into our mailbox from somewhere beyond. They always need our check or credit card to turn pennies into dollars. Common sense should get you a long way in avoiding the computer equivalent of the areas below.
Penny Stocks. Penny stocks are inexpensive stocks issued for new business ventures. At their best, legitimate penny stocks are extremely speculative; at their worst, their prices are easily manipulated by the company and broker-dealers, leaving the unsuspecting investors holding worthless paper.
Precious Metals. Typically, investors are persuaded to invest in gold, silver, or platinum with promises of skyrocketing prices.
Real Estate. Fraudulent real-estate tax shelters, multiple sales of the same worthless land, and developments whose value has been artificially inflated are common real-estate scams. Overselling or misrepresenting time-share units are another popular real-estate rip-off.
Ponzis. Among the oldest of investment frauds, Ponzis work on the principle of hundreds of Peters paying a few Pauls. Early investors (in commodities, real estate, high tech, gold mines, you name it) are paid off or rewarded with money coming in from the succeeding waves of investors, luring still more investors in, until the entire house of cards collapses. The promoters walk away rich.
Oil and Gas. While a legitimate investment area, beware of con artists who use false-front drilling equipment set on worthless land or who sell investments in a huge new "discovery" of oil in an area where there are no known petroleum deposits. These are just two of the many scams in this well-worked "get-rich-quick" field.
How do you avoid these and many other invest investment scams?
First, never invest over the telephone. Avoid "buy-now" sales pitches. Demand a detailed prospectus and other financial offering materials. Check out any company with your state securities office or Better Business Bureau. Be wary of outrageous promises, such as excessively high interest rates, 50-to-1 returns on real estate, or 500 percent profit on oil and gas investments. If someone promises to double your money, it probably means they are promising to double their money.
Qualified Financial Planners - A qualified professional financial planner can provide valuable assistance in helping you avoid the rip-offs and choose legitimate, appropriate investments by analyzing your financial situation and working with you to meet personal goals.
By selecting a qualified professional financial planner, such as a "Certified Financial Planner®" professional, you can reduce your vulnerability to questionable activities And the key to making that selection is full and accurate disclosure. Disclosure is your window into a prospective planner's business practices and background.
Disclosure usually appears in the form of a brochure or a special disclosure document known as Form ADV Part II. First, determine if the financial planner is registered as a Registered Investment Adviser (RIA) with the Securities and Exchange Commission (SEC). All RlAs are required to disclose the information outlined below in the SEC's ADV Part II form or in an equivalent brochure.
The Institute of Certified Financial Planners recommends that any of its members who are not RlAs provide a model disclosure form to consumers that spells out the same information. Regardless of whether the planner is an RIA, the equivalent information should be disclosed, in writing and in advance of starting an advisory relationship.
Remember The Golden Rule:
"IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS."ď»ż