The North American Securities Administrators Association released its “Top 10 Traps” likely to ensnare investors, a list that included real estate investment contracts, affinity fraud, foreign exchange trading, and Internet fraud.
Other problematic areas, according to NASAA, include: “free lunch” investment seminars; oil and gas scams; prime bank schemes; private securities offerings; unlicensed professionals and unregistered products; and unsuitable sales.
“The path to safe investing is littered with traps that are likely to catch unwary investors,” Joseph Borg, NASAA’s president and the director of the Alabama Securities Commission, said in the release. “It always pays to remember that any investment that sounds too good to be true usually is.”
While Borg observed that many investor traps are “usually baited with slick sales pitches promising high returns for little or no risk,” he also noted that investors “can be trapped by legitimate investment products that are suitable for some investors, but not all.”
Unsuitable sales, as they are known, are a concern when securities sales professionals encourage clients to put their assets into investments that are not a appropriate for them. As an example, variable and equity-indexed annuities are incompatible with the needs of most senior investors. Yet, as NASAA explained, sales agents are lured by high commissions on these investments to ignore suitability standards
NASAA further warned of those who target their victims based on religious, ethnic, cultural, or professional ties. Non-English speaking investors are particularly vulnerable. In many “affinity fraud” cases scammers infiltrate a particular group to develop trust and even use a respected member of the group to, knowingly or unknowingly, hype a particular “investment.”
Scams have for centuries been pitched one-on-one, but mass solicitations via the Internet can now instantly reach millions of potential victims. “The Internet can be a con artist’s dream,” NASAA said, “Easy access to you and your money, with no ‘return address’ if the deal goes sour.”
The most prevalent scam run on the Internet is the “pump-and-dump,” in which stock manipulators convince the unwary to buy thinly traded issues in an effort to drive up their price.
A more old-fashion but successful way unscrupulous promoters reach investors is through seminars. Potential victims, including seniors, are offer a free lunch to hear to achieve “higher returns and little or no risk.” Yet the opposite is often true – high risk and no returns.
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