avoiding investment pitfalls

Avoiding Investment Avoiding Investment PitfallsPitfalls

Texas State Securities BoardTexas State Securities Board

Denise Voigt CrawfordDenise Voigt CrawfordSecurities CommissionerSecurities Commissioner

IntroductionIntroduction

Investing requires serious planning Investing requires serious planning and diligent investigation prior to and diligent investigation prior to investinginvesting

Seniors are particularly at risk for Seniors are particularly at risk for investment fraudinvestment fraud

It is important to know what It is important to know what questions to ask and to whom to ask questions to ask and to whom to ask them prior to investingthem prior to investing

Topics of DiscussionTopics of Discussion

Checking out the investment Checking out the investment professionalprofessional

Investigating the investment productInvestigating the investment product Current trendsCurrent trends Warning signs to be on the lookout forWarning signs to be on the lookout for Asking the tough questionsAsking the tough questions We will use scenarios to illustrate We will use scenarios to illustrate

several securities solicitationsseveral securities solicitations

ScenariosScenarios

The scenarios used in this The scenarios used in this presentation are for educational presentation are for educational purposes. Fictional names have purposes. Fictional names have been used for individuals, entities, been used for individuals, entities, and programs. Any similarity and programs. Any similarity between the scenarios and any real between the scenarios and any real individual, entity, or program is individual, entity, or program is purely coincidental.purely coincidental.


Background checks:Background checks:

The State Securities Board is the The State Securities Board is the bestbest source for records. Call us for source for records. Call us for information at 806-762-8010 or by e-information at 806-762-8010 or by e-mail at [email protected] at [email protected]


Alternatively, you may go directly to Alternatively, you may go directly to national databases online:national databases online:

Central Registration Depository (CRD)Central Registration Depository (CRD) www.nasd.comwww.nasd.com Investment Advisers Public Disclosure Investment Advisers Public Disclosure

(IAPD)(IAPD)www.adviserinfo.sec.govwww.adviserinfo.sec.gov

http://www.nasd.com/


Remember, just because someone is Remember, just because someone is professionally licensed in one field professionally licensed in one field does not mean they are registered to does not mean they are registered to offer and sell securitiesoffer and sell securities Insurance SalesmenInsurance Salesmen Estate PlannersEstate Planners Other professionalsOther professionals


Questions to ask Questions to ask include:include: Is the Is the

representative representative registered?registered?

For how long?For how long? Any regulatory or Any regulatory or

criminal actions criminal actions against them?against them?

Any customer Any customer complaints?complaints?

Finding out about investment Finding out about investment productsproducts

Securities should be registered unless Securities should be registered unless being offered pursuant to an being offered pursuant to an exemptionexemption

Public offerings/private offeringsPublic offerings/private offerings Contact the SSB Registration DivisionContact the SSB Registration Division If not registered, ask those offering If not registered, ask those offering

the program why they are not the program why they are not registeredregistered

Current TrendsCurrent Trends

Be cautious about “secret” offerings Be cautious about “secret” offerings and products you have never heard and products you have never heard ofof

Headlines breed the latest in Headlines breed the latest in fraudulent schemes:fraudulent schemes: Oil and GasOil and Gas Real EstateReal Estate Bird FluBird Flu

Current TrendsCurrent Trends

Tactics employedTactics employed Preying on insecurityPreying on insecurity Reverse mortgagesReverse mortgages IRA accountsIRA accounts Living trustsLiving trusts

Scenario # 1Scenario # 1

Telephone CallTelephone Call ““Johnny”Johnny” Oil well drilling Oil well drilling

projectproject Tax benefitsTax benefits

Scenario # 1 continuedScenario # 1 continued

““You know how You know how high the price of high the price of gas is nowadays”gas is nowadays”

Working Interests Working Interests in the SSB #1A in the SSB #1A well in Kleberg well in Kleberg County, TexasCounty, Texas

$50,000 a unit$50,000 a unit Unit= 2% WIUnit= 2% WI


Expecting to yield Expecting to yield 500 barrels of oil a 500 barrels of oil a dayday

When the price of oil When the price of oil doubles, so will your doubles, so will your profitprofit

Using high tech Using high tech drilling techniques drilling techniques other oil companies other oil companies don’t usedon’t use


After they’ve After they’ve finished talking and finished talking and it’s finally your turn it’s finally your turn to talk, what to talk, what questions should questions should you ask?you ask?

Warning signs Warning signs

High returns/low riskHigh returns/low risk Unregistered product/unregistered agentUnregistered product/unregistered agent Won’t provide audited financial Won’t provide audited financial

statementsstatements Does not explain how the program is Does not explain how the program is

supposed to generate returns for the supposed to generate returns for the investor (expects that the high returns investor (expects that the high returns will be enough to lure the investor)will be enough to lure the investor)


Past violations with regulatory Past violations with regulatory agenciesagencies

Pressure tactics in sales pitchPressure tactics in sales pitch Documents vary from verbal Documents vary from verbal

representationrepresentation Program relies heavily on the abilities Program relies heavily on the abilities

of the principals without disclosing of the principals without disclosing much about the principal’s abilitiesmuch about the principal’s abilities


Evades questions asked by investorsEvades questions asked by investors Won’t leave advertising materials or Won’t leave advertising materials or

copy of contract with the investorcopy of contract with the investor Insists decisions be made quickly Insists decisions be made quickly


Insurance agent who Insurance agent who sold you long term sold you long term care insurance has care insurance has something else to something else to offeroffer

It will provide It will provide monthly income at monthly income at 15.8% and is low risk15.8% and is low risk

Are you interested?Are you interested?


The program works The program works like this:like this:

You buy equipment, You buy equipment, consisting of a consisting of a computer game computer game terminal to be placed terminal to be placed in shopping malls, from in shopping malls, from GameEquipment.com GameEquipment.com

You lease the You lease the equipment back to a equipment back to a company called company called WeeLease.comWeeLease.com


WeeLease manages WeeLease manages the equipment, the equipment, collects the collects the payments for the payments for the price of using the price of using the equipment and equipment and sends you a monthly sends you a monthly check equivalent to check equivalent to 15.8% annual 15.8% annual returnsreturns


This is not a securityThis is not a security It’s been registered as It’s been registered as

a business opportunity a business opportunity with the State of Texaswith the State of Texas

It’s not a security It’s not a security because you have the because you have the option to run the option to run the business yourself business yourself (although no one ever (although no one ever does)does)

A special fund has been A special fund has been created to “guarantee” created to “guarantee” return of principalreturn of principal


When he comes to When he comes to your home with the your home with the contract for the contract for the “opportunity,” “opportunity,” what questions will what questions will you ask?you ask?

Ask the tough questionsAsk the tough questions

Many people are afraid to ask tough Many people are afraid to ask tough questions out of fear of being rudequestions out of fear of being rude

Investors have the right to know Investors have the right to know details about the program they are details about the program they are investing ininvesting in


What is the name of the company?What is the name of the company? How long has it been in business?How long has it been in business? Are audited financial statements Are audited financial statements

available?available? What is the operating history of the What is the operating history of the

company?company?

Ask the tough questionsAsk the tough questions Who are the principals of Who are the principals of

the company?the company? Have any of the principals:Have any of the principals:

Ever filed for Ever filed for bankruptcy?bankruptcy?

Been party to a law Been party to a law suit?suit?

Been indicted/convicted Been indicted/convicted on criminal charges?on criminal charges?

Been the subject of a Been the subject of a regulatory action?regulatory action?


Is the person offering the program an Is the person offering the program an officer or director of the company?officer or director of the company?

Are they registered to offer and sell Are they registered to offer and sell securities in Texas?securities in Texas?


What is the rate of What is the rate of return?return?

Can I liquidate my Can I liquidate my investment should the investment should the need arise?need arise?

What will my funds be What will my funds be used for?used for?

How will this generate How will this generate returns for me?returns for me?

What risks are What risks are associated with the associated with the investment?investment?


Local Business ManLocal Business Man In business 22 In business 22

yearsyears Active in the Active in the

community and community and has a good has a good reputationreputation

Scenario #3 continuedScenario #3 continued

Offers limited Offers limited partnership interest partnership interest in a real estate in a real estate ventureventure

Provides 13% Provides 13% annual returnsannual returns

May receive May receive monthly, quarterly, monthly, quarterly, or annual paymentsor annual payments


The returns will be The returns will be generated by generated by building luxury building luxury homes in a local homes in a local community and community and selling them at a low selling them at a low price so more people price so more people can afford themcan afford them

Investor funds are Investor funds are used to purchase used to purchase materialsmaterials


The minimum to The minimum to invest is $25,000invest is $25,000

Investors receive the Investors receive the first payment within first payment within 30 days of wiring 30 days of wiring their funds to the their funds to the head of the head of the companycompany

Business Man can Business Man can provide referencesprovide references


When he When he telephones you to telephones you to check your interest check your interest in the program, in the program, what questions will what questions will you ask?you ask?

Answers to Investor Awareness Answers to Investor Awareness QuizQuiz

1.1. A retired teacher in West Texas is A retired teacher in West Texas is unlikely to unlikely to be the victim of investment be the victim of investment

fraud.fraud.

A:A: FALSEFALSE

2.2. An investment that is marketed as An investment that is marketed as paying paying high returns with little or no risk high returns with little or no risk is a is a good place to put one’s money.good place to put one’s money.

A:A: FALSEFALSE


3.3. A person who calls him- or herself a “senior A person who calls him- or herself a “senior advisor” or “estate planning professional” is advisor” or “estate planning professional” is licensed and qualified to sell securities to senior licensed and qualified to sell securities to senior citizens.citizens.

A:A: FALSEFALSE

4.4. Investments made through a self-directed IRA Investments made through a self-directed IRA custodian are unlikely to be fraudulent.custodian are unlikely to be fraudulent.

A:A: FALSEFALSE


5.5. Victims of investment fraud will get their Victims of investment fraud will get their money back from the government, if not money back from the government, if not from the perpetrator.from the perpetrator.

A:A: FALSEFALSE

6.6. No one has as much incentive to look No one has as much incentive to look after your financial well-being as you do.after your financial well-being as you do.

A:A: TRUETRUE

Q & AQ & A

Contact the SSBContact the SSB

If you suspect that you If you suspect that you or someone you know or someone you know may be the victim of an may be the victim of an investment scam, please investment scam, please contact the State contact the State Securities BoardSecurities Board

Contact the SSBContact the SSB

www.ssb.state.tx.uswww.ssb.state.tx.us

512-305-8300 (Main)512-305-8300 (Main) 512-305-8332 (Registration)512-305-8332 (Registration) 512-305-8392 (Enforcement)512-305-8392 (Enforcement) 888-663-0009 (Toll Free)888-663-0009 (Toll Free)

http://www.ssb.state.tx.us/

Texas State Securities Texas State Securities BoardBoard

Austin Austin 512-305-8300512-305-8300 Corpus Christi Corpus Christi 361-887-1085361-887-1085 Dallas Dallas 214-630-8681214-630-8681 Houston Houston 713-426-0336713-426-0336 LubbockLubbock 806-762-8010806-762-8010 San Antonio San Antonio 210-886-0153210-886-0153

““Investigate Before You Invest”Investigate Before You Invest”

avoiding investment pitfalls

Documents

investment fraudit

investment productssecurities

barrels of oil

price of oil doubles

investorwarning signs

oil companies dont usescenario

ssb registration divisionif

price of gas