|
Investment scams are nothing new. But these days they can be more sophisticated than ever before, and come in more varieties. These scams have been receiving more and more attention from the Securities and Exchange Commission, but it's essential that individual investors also be prepared for today's financial con artists.
And remember that financial scams are often targeted toward older Americans and retirees, who can find themselves vulnerable to the slick approach of many con artists. Here are some of the investment scams being used today.
The Free Lunch
The SEC recently completed a year-long examination of the so-called free lunch investment seminar business. The agency looked at 110 securities firms and their branch offices that offer investment "seminars," and use a free meal to boost attendance. It found that 100 percent of the time the "seminars" were actually sales presentations designed to make attendees open new accounts or buy specific products.
Half of the time the SEC found the people leading the seminar made exaggerated or misleading claims about the products they were selling. And a quarter of the time they made investment recommendations that were possibly unsuitable for the investor involved. Outright fraud appeared to be involved 13 percent of the time.
While the person leading the seminar may not be doing anything illegal, there's a good chance that they don't have the best interests of the investor in mind. One popular product often offered at free lunch seminars are variable annuities. These are complicated investments not to be purchased without adequate research. Not coincidentally, they tend to offer generous commissions to the financial adviser who sells them.
The Internet
There's no question that the internet is a powerful tool for investors, allowing one to do extensive research on a company or mutual fund in a short period of time. But the internet is also a place where people may try to pitch certain investments.
Be very skeptical about investment recommendations that come via the internet. It's one thing to follow the advice of an online newsletter to which one subscribes. It's quite another thing to pursue a hot stock tip that showed up without warning one day in one's email.
Before making any investment, get financial statements and other information that a publicly traded company or mutual fund is required to file with the SEC. Verify any claims of new products about to be introduced or big new contracts about to be signed. Call suppliers and customers of the company to see what they have to say. And check out the background of the company's top management team.
by: Stephen Simurda
|