Regulators warn of growth of new investor scams
— -- Technology isn't the only industry that's constantly changing: State securities administrators listed four new types of fraud among their annual list of investor threats.
The North American Securities Administrators Association's top 10 investor threats, released Tuesday, includes many boiler-room staples, such as gold and precious metals scams, oil and gas drilling fraud, and worthless promissory notes.
But the list includes an unusual number of new scams:
• Crowdfunding and internet offers. The 2012 JOBS act loosens some of the rules for small businesses to raise money via stock offerings. "Small startups are among the riskiest investments even in the best of situations," says Matt Kitzy, head of NASAA's enforcement section. Already, NASAA has noted 1,600 to 1,700 new internet domain names relating to crowdfunding, and the regulations permitting crowdfunding have yet to be written.
• Bad advice from investment advisers. Thousands of mid-sized investment advisory firms have shifted from federal oversight to state supervision. As a result, many firms that haven't been examined in a long time are undergoing scrutiny — and being found wanting. State actions against investment adviser firms nearly doubled in 2011, NASAA says. "It's likely more robust regulation will reveal more problems with investment advisers," Kitzy says.
• Self-directed IRAs. You don't have to invest your IRA in stocks or bonds: You can use your IRA money to invest in real estate or even a small business. But you can also open yourself up to fraud. Self-directed IRA custodians don't validate the legitimacy of a self-directed IRA; they just hold the money. A scam artist can create a phoney business for a self-directed IRA and bleed the account dry.
• Investment-for-visa scams. Foreign investors who put at least $500,000 into a new business can get a U.S. visa under the 20-year-old Immigrant Investor Program. Scamsters will sometimes tout the potential of big foreign investors to lure U.S. investors into a fraud, NASAA says.
Many long-time scams are flourishing, NASAA says. Fraudsters love to latch onto an investment trend. For example, gold scams remain popular because gold prices have soared in the past decade. In its simplest form, you get a pitch to buy gold, which the scam artist says will be held safely in a vault for you. In reality, there's no gold and no vault.
Oil and gas scams have multiplied as oil prices have risen. Typically, investors get taken in by high-pressure sales pitches that don't mention that it's entirely possible to lose your entire investment. State securities administrators have oil and gas investigations in every region of the U.S., NASAA says.
Interested in flipping houses? Scam artists are interested in flipping you. How about a special, private placement investment? Don't be surprised if there's nothing behind it but a fast-talking con artist.
And NASAA is also looking into insurance agents who urge you to sell your stocks and bonds and buy annuities. Although annuities have their place in the investment world, most agents aren't licensed to give investment advice.
Low interest rates and erratic Wall Street performance has driven many investors into the hands of fraudsters. "Those with worst intentions love to take advantage of headlines and popular ideas that stocks and Wall Street are not to be trusted," Kitzy says "You need to keep in mind that no investment is risk-free."
2012 top investor threats:
• Crowdfunding and Internet offers
• Inappropriate advice or practices from investment advisers
• Scam artists using self-directed IRAs to mask fraud
• EB-5 Investment-for-visa schemes
• Gold and precious metals
• Risky oil and gas drilling programs
• Promissory notes
• Real estate investment schemes
• Reg D/Rule 506 private offerings
• Unlicensed salesmen giving liquidation recommendations
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