Investment Scams

1. Learning Goals • Recognize a scam • Major types of scams • Why are people susceptible? Investment Scams

2. Danger signs: • ____________________________ contact. • Offered to only a few individuals. • Pressure to act _______________________. • No financial information. • Promise extremely high returns with no _____. • Claims of secret business practices or unique securities. Recognizing Scams

3. If offered a deal that sounds too good to be true, it probably isn’t true. • Ask yourself, “Why me?” • Ask for a prospectus and financial statements. If none are available, hang up or walk away. Recognizing Scams

4. Meet the person at his/her office. If the firm has no local representative, ask if you can purchase the investment through your local broker. If told it is a “special” opportunity not offered through traditional broker/dealers, walk away. Many scams involve ___________________________ securities. Recognizing Scams

5. Major types of scams • Unlicensed individuals selling securities • Affinity group fraud • Internet fraud • Ponzi/pyramid schemes • Investment seminars • Boiler room operations • Identity theft Investment Scams

6. Unlicensed individuals selling securities. • If someone you don’t know tries to sell you securities or other investments, ask for their CRD#. • CRD: ________________________________. • All licensed brokers have a CRD#. Investment Scams

7. Go to NASD.ORG and look up the broker’s record for any disclosures. • Examples of disclosures: • criminal events • financial disclosure events (e.g., bankruptcies, unsatisfied judgments and liens) • regulatory actions • customer complaints • civil judicial events (e.g., injunctions). Investment Scams

8. Affinity Group Fraud involve the use of religious or ethnic identity to gain trust. • Example: the Arizona Baptist Fund, in which investors lost approximately $200 million. Investment Scams

9. Internet Fraud • Unsolicited investment “newsletters” and e-mail spam promoting investments. • Pump & dump on chatrooms • Phishing: fraudulent e-mails that steal personal information Investment Scams

10. To protect against online identity theft: • Beware of e-mail requesting personal info • Leave suspicious web sites • Keep info secure • Know who you are doing business with • Check your _______________ report annually • Review account statements • Don’t access accts from public computers • Act quickly if you believe you have been scammed Investment Scams

11. Ponzi schemes are named after Charles Ponzi: in 1919 he promised to double investors money in 90 days. • He used money from later “investors” to pay off early ones. Investment Scams

12. Ponzi schemes still occur. • In 2004, Gene Black and Renate Haag collected more than $3.5 million by promising to double investors money in four months by investing in “prime bank” securities. Ponzi Schemes

13. Investment seminars scam people two ways. • Charge people admission fees and sell books, CDs, DVDs and tapes with fake get-rich-quick schemes. • Gain confidence of attendees and talk them into fake investments. Investment Scams

14. A boiler room is a high-pressure sales technique involving salesmen working on the phone. • Most boiler room operations use a “_____ _____________________” scam, often involving penny stocks. • The movie “Boiler Room” with Ben Affleck shows a typical operation. Boiler Rooms

15. Why do people fall for various investment scams? • ______________________ • Desire to get something for _______________ • ______________________ Investment Scams

16. How can you avoid investment scams: • Be ________________________! • Ask for info • Don’t rush in • Check on the broker/salesman • Visit the broker at his office • Talk to others before you act Investment Scams