Investing in securities is risky enough without worrying about whether your
salesperson is out to fleece you. To be an informed investor, you must know
what danger signs to look for. Some are subtle, and some are easier to spot.|
Rule Number 1: Con Artists Do Not Like To Be Found
Con artists know that being themselves hurts business. Effective con artists
must disguise their true motives. Whether your first contact with the con
artist is through an unsolicited telephone call or a stranger ringing your
doorbell, the con artist takes great pains to look, sound and speak like you or
me. Often, con artists like to blend in with others in your group whether that
group be political, community (such as the local senior center), religious or
other. They quickly get to know a lot of people in the group so they can count
on this common bond to spread the word about their questionable investments and
reel in unsuspecting investors.
Rule Number 2: Con Artists Dress For Success
Even though con artists would like you to believe that they are "just
plain folk," they are smart enough to realize that this alone will not
sway you to part with your money. They work very hard to come across as smooth,
professional and successful. Con artists may dress like they are wealthy and
work out of impressive looking offices. If your only contact is by mail, the
office may bear a prestigious sounding address. Often, this is nothing more
than a mail drop. Your best bet is to look behind the surface and do some
serious investigating before you part with your money.
Rule Number 3: Con Artists Often Push Poorly Understood Financial Products
Today, a variety of institutions, from banks to brokerage firms to financial
planners, offer a wide range of financial products. With such a confusing mix
to choose from, it is no wonder that many people turn to financial advisers for
guidance. Con artists know this and stand ready to assume full responsibility
for your investment decisions. Don`t let them! When it comes to your money,
think things through for yourself after getting all the facts. Never give
someone control over your purse strings just because you think you are too old,
young or financially inexperienced. If you really need help, only deal with
financial advisers, broker-dealers or financial institutions with a proven
Con artists also appeal to the dreamer in you. Many people secretly believe
that Horatio Alger`s rags-to-riches story can become a reality for them -- if
only they get the right break. To them, investing in untested technologies and
cutting edge product s before anyone else does is a sure-fire way to make
money. International instruments such as letters of credit supposedly issued by
foreign banks may spell stability for some people. Con artists sabotage your
dreams. They promise you the investment chance of a lifetime without giving you
any meaningful written information on the product or the pitfalls involved.
Rule Number 4: Con Artists Bring Out The Worst In You
Skilled con artists can bring out your worst traits, particularly greed, fear,
and insecurity. Fear comes into play when the con artist warns you that
complaining about a failed investment to the government may result in your
spoiling it for others or "rocking the boat." Con artist try to make
you feel inadequate if you don`t believe them. In addition, con artists know
how to make you believe that if you lack confidence in them, this is a personal
slight to their abilities. If you find yourself making investment-related
decisions based only on your emotions, watch out!
Rule Number 5: Con Artists Are Fair Weather Friends
Before you invest, con artists are very friendly. They take a personal interest
in you out of the blue. They call back when they promised they would. Each
time, they tell you even more good things about the investment. You may feel
you`re being pressured into investing. You are. Face it. Despite his or her
kind words, the con artist will do anything in his or her power to make a sale.
In fact, the contacts may become so repeated that you may wish that your first
contact had been your last. Too of ten, however, once you have invested your
money, contact with the con artist dwindles and then stops altogether. If you
cannot get answers to your questions following your investment, this may signal
Rule Number 6: For Every Silver Lining, There Is A Cloud
Every investment involves risk. But to hear the con artist explain it, the
investment may be too good to be true. Trust your inner voice if you hear
claims like these:
- "I just got a hot tip
from an inside source that this stock will go through the roof."
- "The rumor on the Street
is that this deal is ready to take off."
- "Your return is
guaranteed. There`s no way you can lose money."
- "Gotta get in on the
ground floor now or you`ll be left out in the cold. In fact, we`ll send a
messenger over tomorrow to pick up your check." (Con artists often use
this device to avoid federal mail fraud charges.)
- "Where else can you earn
such a large return? Not in CDs or in a savings account."
- "In just a short while,
your profits will come rolling in."
- "This deal is so great,
I invested in it myself."
- "If this doesn`t perform
as I just said, we`ll refund your money no questions asked."
- "Everyone else that
invested in this did very well."
Be especially careful if the salesperson downplays any downside or denies that
risk exists. Con artists usually are not very good at answering important
questions. Watch out if the salesperson becomes reluctant to provide
information on the following:
- The background, educational
history and work experience of the deal`s promoters, principals or general
- Information on whether your
investment monies will be segregated from other funds available to the business
- Written information on the
business` financial condition, such as a balance sheet and bank references
- The prior track record of the
business and its principals
- The salesperson`s name, where
he or she is calling from, who he or she works for, his or her background and
what commission or other compensation he or she will receive
- The salesperson`s connection
with the venture and any affiliates.
In addition, be wary if the salesperson doesn`t ask you questions about your
past investment experience and your ability to withstand risk. Even if the
salesperson does ask a few related questions, take heed if you get the sense
that he or she is merely going through the motions.
Rule Number 7: Watch Out For The Man From P.O.N.Z.I (Pay-Out now, Zero
No self-respecting con artist would actually admit that he or she was involved
in a Ponzi scheme. The Ponzi scheme was named after Charles Ponzi, an Italian
immigrant who, after being jailed in Canada for fraud, moved to Boston in the
early part of this century. Ponzi solicited people to invest in International
Postal Reply Coupons which could be redeemed for stamps. He promised them a 40
percent return in just 90 days. Ultimately, the authorities discovered that
there weren`t enough coupons in circulation to support Ponzi`s schemes. Ponzi
was imprisoned in Massachusetts and then deported to Italy. The scheme he
created, however, continues to survive in many forms.
In a typical Ponzi scheme, large returns are paid to initial investors out of
the funds of later investors. Not only does this give the first investors
confidence in the deal, but it motivates others to invest. Unfortunately, the
later investors lose all or most of their money to the con artist. If you are
promised high, guaranteed profits and given no written explanation concerning
the investment vehicle, the promoter`s background or the risks involved, be
careful. A Ponzi scheme may be at work. Ponzi operators also tend to persuade
you to "roll over" your "profits" into still another
investment - so your return only ends up being on paper.
Rule Number 8: Steer Clear Of Pyramid Schemes
Pyramid schemes are a variation of the Ponzi scam. Think of a pyramid. Money is
collected from people on the bottom to pay off other individuals farther up the
pyramid. As more people invest, new pyramid levels are created, and your
position in the pyramid rises. In theory, you would be entitled to more money.
Many times, you must also buy a product to join.
However, unlike a true multi-level marketing plan, selling the product is less
important than recruiting others to join the network. Ultimately, there comes a
time when no new money flows in. When this happens, the pyramid collapses.
Tips On Not Falling Prey To A Con
- Avoiding being hurt by a con
artist is as easy as doing your homework -- before you invest.
- Contact your state or
provincial securities regulator to see if the investment vehicle and the person
selling it are registered.
- Your state or provincial securities
regulator will also be able to tell you if the salesperson has a disciplinary
history, that is, whether any civil, criminal or administrative proceedings
have been brought against him or her.
- Contact your local Better
Business Bureau to see if any complaints have been filed against the venture`s
promoters or principals.
- Deal only with financial
advisers, broker-dealers or financial institutions having a proven track
- Ask for written information
on the investment product and the business. Such information, including
financial data on the company and the risks involved in the investment, is
contained in a prospectus. Read it carefully.
- Don`t take everything you
hear or read at face value. Ask questions if you don`t understand, and do some
sleuthing for yourself. If you need help in evaluating the investment, go to
someone independent whom you can trust such as an attorney or an accountant.
- Steer clear of investments
touted with no downside or risk.
The Director of the Alabama Securities Commission
(ASC) cautions potential investors to thoroughly check out any investment
the Alabama Securities Commission for inquiries regarding securities
broker-dealers, agents, investment advisors, and investment advisor
representatives, the registration status of securities, to report suspected
fraud, or obtain consumer information:
|Call: 1-800-222-1253 or (334)242-2984
Fax: (334) 242-0240 or (334)353-4690
||Write: Alabama Securities Commission
P.O. Box 304700
Montgomery, AL 36130-4700