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Top 9 investor threats for 2015: NASAA

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State regulators on released their list of top emerging threats facing investors in the New Year, which includes schemes involving binary options, marijuana-related businesses, stream-of-income investments and digital currency.

NASAA also released its list of ongoing threats that state regulators continue to watch.

William Beatty, NASAA’s president and Washington Securities Director, said in announcing the list that “many of the top threats facing investors involve new products in classic schemes.”

Regulators, he said, are seeing classic threats to investors “morph into new or altered dangers, many fueled by the Internet.” Overarching all of these threats “are unlicensed agents selling unregistered products to unsuspecting investors.”

But actions against unregistered individuals continue to rank highest among enforcement actions by state securities regulators. “It cannot be said enough that investors should independently verify any investment opportunity as well as the background of the person and company offering the investment,” Beatty said.

See also: 12 worst financial advisors in America: 2014

The list of top threats facing unwary investors throughout North America was compiled by the securities regulators in NASAA’s Enforcement Section.


Top emerging threats:

  1. Binary Options, which are securities in the form of options contracts that have a payout that depends on whether the underlying asset – for example, a company’s stock or a stock index – increases or decreases in value.

  2. Marijuana Industry Investments. While medical marijuana is legal in 23 states and the District of Columbia, and recreational use is legal in four states and in DC, scam artists recognize an opportunity to capitalize on this trend. Micro-cap companies are selling low-priced securities which typically are highly speculative and carry a high degree of risk for investors. Securities regulators are seeing “pump and dump” scams, typical of micro-cap offerings.

  3. Stream-of-Income Investments. Investors looking for monthly returns are being enticed to invest by companies that introduce investors to individuals selling a stream of income, such as pension payments or government disability payments. These investments can carry significant risks as laws may prohibit the assignment of the stream of income/benefits, the seller typically maintains the legal right to redirect the payment, and if the seller does redirect the payment, the investor may be left with an unenforceable contract right

  4. Digital Currency & Cybersecurity Risks. Digital currencies are emerging as trendy way of paying for goods and services, with Bitcoin the most popular digital currency. It was priced at around $10 per unit in early 2013 but peaked at around $1,200 per unit later that year. The rapid increase in price sparked considerable public interest and significant media attention, creating a fresh market for securities offerings tied to digital currencies. Unfortunately, unscrupulous promoters may be attempting to capitalize on this popularity by illegally offering securities tied to digital currencies.


Top persistant threats: 

  1. Reg D/Rule 506 Private Offerings. Private placement offerings–often referred to as “Reg D” or “Rule 506” offerings–are among the most cited examples of fraudulent securities. These generally highly illiquid and rather opaque securities have little oversight, and no filings are required with either the SEC or states until after sales are made to investors.

  2. Pyramid and Other Ponzi Schemes. State regulators are seeing a rise in multilevel marketing offerings that were pyramid schemes (MLM). These MLM schemes are a combination of a Ponzi scheme perpetrated in an affinity fraud fueled by the internet. Some common characteristics are: the product is ancillary to the overall scheme; money is made primarily when you recruit others to purchase the investment, not from actual product sales.

  3. Real Estate Schemes (including Those Using Promissory Notes). As the real estate market continues to recover, and traditional methods of earning interest remain low, state regulators continue to see fraud in real estate schemes and promissory notes, which were the second most frequently reported problem areas in the 2013 data.

  4. Affinity Fraud and Internet Fraud (including Social Media and Crowdfunding). Many of the threats involve frauds perpetuated through the Internet and through relationships that may give an investor a feeling that an investment must be safe. Investors are encouraged to not assume the legitimacy of an investment simply because it is presented with an internet website, or through a trusted acquaintance.

  5. Oil & Gas Investments in the Fracking Era. Investors should be wary of believing that recent headlines of the current oil and gas boom are indications of potential high returns in oil and gas drilling programs. Hydraulic fracturing, also known as “fracking,” and horizontal drilling are credited with facilitating record levels of oil and natural gas production in this new, technology-driven boom that has grabbed national headlines.

See also: Advisor barred for hiding astrology-based investment strategy


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