Top 10 Investment Scams

Here’s one Top 10 that Letterman will never touch. There’s nothing funny about the list of Top 10 investment scams that state securities regulators are combating. From the home office at the North American Securities Administrators Association, and in order of prevalence or concern:

1. Unlicensed individuals, such as life insurance agents, selling securities. To verify that a person is licensed or registered to sell securities, call the “commission at 1-800-600-0007. If the person is not registered, don’t invest.

2. Affinity group fraud. Many scammers use their victims’ religious or ethnic identity to gain their trust – knowing that it’s human nature to trust people who are like you – and then steal their life savings.

3. Pay phone and ATM sales.

4. Promissory notes. Short-term debt instruments issued by little-known or sometimes non-existent companies that promise high returns – upwards of 15 percent monthly – with little or no risk. These notes are often sold to investors by independent life insurance agents.

5. Internet fraud. Scammers use the wide reach and supposed anonymity of the Internet to “pump and dump” thinly traded stocks, peddle bogus offshore “prime bank” investments and publicize pyramid schemes. Roughly half the states, including Pennsylvania with its Internet Fraud Unit, have Internet surveillance programs that watch for fraud or investigate investor complaints. Regulators urge investors to ignore anonymous financial advice on the Internet and in chat rooms.

6. Ponzi/pyramid schemes. Always in style, these swindles promise high returns to investors, but the only people who consistently make money are the promoters who set them in motion, using money from previous investors to pay new investors. Inevitably, the schemes collapse. Ponzi schemes are the legacy of Italian immigrant Charles Ponzi. In the early 1900s, he took investors for $10 million by promising 40 percent returns from arbitrage profits on International Postal Reply Coupons.

7. “Callable” CDs. These higher-yielding certificates of deposit won’t mature for 10 to 20 years unless the bank, not the investor, “calls,” or redeems, them. Redeeming the CD early may result in large losses – upwards of 25 percent of the original investment. Regulators say sellers of callable CDs often don’t adequately disclose the risks and restrictions.

8. Viatical settlements. Originated as a way to help the gravely ill pay their bills, these interests in the death benefits of terminally ill patients are always risky and sometimes fraudulent. The insured receives a percentage of the death benefit in cash, and investors get a share of the death benefit when the insured dies. Because of uncertainties predicting when someone will die, these investments are extremely speculative. In a new twist, Pennsylvania regulators say “senior settlements” – interests in the death benefits of healthy older people – are now being offered to investors.

9. Prime bank schemes. Scammers promise investors triple-digit returns through access to the investment portfolios of the world’s elite banks. Purveyors of these schemes often target conspiracy theorists, promising access to the “secret” investments used by the Rothschilds or Saudi royalty.

10. Investment seminars. Often the people getting rich are those running the seminar, making money from admission fees and the sale of books and audiotapes. These seminars are marketed through newspaper, radio and TV ads and “infomercials” on cable television. Regulators urge investors to be skeptical about any get-rich-quick scheme.