Top 10 Financial Scams Investors Should Avoid

scam1.jpgEarly last month, The North American Securities Administrators Association (NASAA) released a list of 10 financial traps that investors should avoid. The article also provides advices on the right course of action when shopping for financial products.

Among the advices, I found this one “If you don’t understand an investment, don’t invest,” can in fact be applied to many situations that don’t involve financial scams at all. Before making any investment decisions, a thorough research should be done in order to get all the facts, pros and cons, of the product involved. Without a full understanding of how it works, what actions are required, and possible consequences, your ill-advised investments will come back and bite you.

  • Affinity Fraud. In this case, religious, ethnic, cultural and professional groups are usually targeted to promote investment schemes by convincing people that a fraudulent investment is legitimate.
    • Always remember: “Investigate before you invest – no matter who is selling.”
  • Foreign Exchange Trading. Forex scams attract customers with sophisticated-sounding offers placed in various advertisements. But they are not for everybody.
    • Always remember: “If you don’t understand an investment, don’t invest.”
  • Internet Fraud. These scams come in the form of unsolicited e-mails instant messages, and phony websites promising huge returns.
    • Always remember: “The internet can be a con artist’s dream – easy access to you and your money, with no “return address if the deal goes sour.”
  • Investment Seminars. People eager for investment knowledge are trapped by unsuitable investments which are offered together with free investment seminars. In many cases, these investments involve high risk and low returns, if any.
    • Always remember: “There’s no such thing as a free lunch.”
  • Oil and Gas Scams. Surging oil prices prompt an array of alternative energy investments. Most of them, however, are highly risky and not appropriate for smaller investors.
    • Always remember: “Con artists tend to follow the headlines.”
  • Prime Bank Schemes. There’s no such thing as prime banks. Scammers who want to sell people the idea of high-yield prime banks only want profits for themselves.
    • Always remember: “Often the most sophisticated sounding investments are just false promises in fancy garb.”
  • Private Securities Offerings. Be aware of private securities offerings under Rule 506 Regulation D of the Securities Act of 1933. It’s not rare that these products don’t follow the full registration process and, thus, are fraudulent.
    • Always remember: “Especially with lightly regulated investment offerings, it pays to consult a trusted financial adviser.”
  • Real Estate Investment Contracts. Some real estate investments are securities subject to full regulation under the state and federal securities laws. Without appropriate registrations, the product could be a same.
    • Always remember: “Just because an investment involves real estate – or pay phones or worm farms – it still may be a security, so check with your state securities regulator.”
  • Unlicensed Individuals & Unregistered Products. Anyone engaging in selling securities or providing investment advice should have a valid license to do so. Otherwise, the whole practice raises the red flag.
    • Always remember: “Carefully check out anyone offering to help you buy or sell securities or providing investment advice.”
  • Unsuitable Sales. Sales persons may only be interested in selling the products and make a profit, whether the products are suitable for investors or not.
    • Always remember: “Make sure your investments match up with your age, your need for access to money, and your risk tolerance.”

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3 Responses to “Top 10 Financial Scams Investors Should Avoid”

  1. Ed Kohler |  Jun 11, 2007 at 2:38 pm

    Along the lines of, “If you don’t understand the investment . . . ” I’d add, “If the investment is advertised on AM talk radio, stay away.”

  2. Sun |  Jun 12, 2007 at 8:35 am

    Though I think there are exceptions, it indeed sounds suspicious if the company pays to get on the program. I guess good companies with solid record don’t do that.

  3. Plus6 |  Jun 28, 2007 at 3:01 pm

    Not sure who coined this saying but its appropriate for this post: “Whenever you do a business deal, you always look for the sucker. If you don’t see one, then you are the sucker.”