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August 19, 2011 at 07:05 AM
Next week, the North American Securities Administrators Association (NASAA) will release its annual list of the top traps facing investors. You’ll have to wait for the details, but I can give you a look at the common themes running throughout this year’s list.
The behavior of the stock markets over the past couple of weeks show that investors are facing increased volatility while trying to recover from the worst financial crisis in generations. Combined with a steady drumbeat of negative economic news, nervous investors are looking for financial security.
This is prime time for unscrupulous salesmen to pitch their promises of steady guaranteed returns through a variety of investment schemes.
Several of the products and practices in this year’s list of top investor traps are backed by cases from the files of state securities regulators illustrating just how powerful the lure of guaranteed returns is to investors. Many of these cases involve elderly investors and most of the examples we will cite include promises of returns between 8 % and 12%. Low risk and safety are other common tools in the bag of tricks of today’s con artists.
Everyone wants solid returns with little or no risk. But that’s not how the real world works. Legitimate investment advisors know this and explain the risk/reward ratio to their clients as a matter of course. But the fly-by-night con artists who are preying on investors today don’t play by these rules. As a result, they are taking money out of your pockets every time they launch a slick scheme on unsuspecting investors.
You can do something about this by listening to your clients, recognizing some of the warning signs of fraud and contacting your state securities regulator for help. By working together, we can catch fraud before it happens.
Consider this cautionary example. Earlier this week, an investigator at a bank contacted the Maine Office of Securities seeking help for one of the bank’s elderly customers.
The customer had recently sold his house for a significant amount of money. After the sale, he began receiving calls from several apparent investment companies promising an 85% return on his investment. Enticed by the promise of such high returns, the customer contacted the bank and requested to make two large wire transfers that very afternoon.
