Investment ScamsInvestment Scams

Learning Goals◦Recognize a scam◦Major types of scams◦Why are people susceptible?

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Recognizing ScamsRecognizing Scams

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.

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Recognizing ScamsRecognizing Scams

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.

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Recognizing ScamsRecognizing Scams

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.

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Investment ScamsInvestment Scams

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

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Investment ScamsInvestment Scams

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#.

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Investment ScamsInvestment Scams

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).

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Investment ScamsInvestment Scams

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.

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Investment ScamsInvestment Scams

Internet Fraud◦Unsolicited investment “newsletters” and e-

mail spam promoting investments.◦Pump & dump on chatrooms◦Phishing: fraudulent e-mails that steal personal

information

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Investment ScamsInvestment Scams

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

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Investment ScamsInvestment Scams

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.

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Ponzi SchemesPonzi Schemes

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.

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Investment ScamsInvestment Scams

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.

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Boiler RoomsBoiler Rooms

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.

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Investment ScamsInvestment Scams

Why do people fall for various investment scams?◦______________________◦Desire to get something for _______________◦______________________

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Investment ScamsInvestment Scams

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

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