Welcome to Friday the 13th. Do you know the 10 best ways you can get cheated?

The North American Securities Administrators Association (NASAA) has identified the most common ploys used today to cheat investors:

  1. Ponzi Schemes. You know this as a pyramid scheme. It's named for Charles Ponzi, a wonderful swindler. The idea is to pay off early investors with money that you raise from later investors. Who makes the money? The people who constructed the Ponzi, which eventually collapses under its own weight.
  1. Unlicensed Individuals Selling Securities. That's relatively simple. No license, No sale. Those who bypass the license requirement often are predators offering bogus investments.
  1. Unregistered Investment Products. These people also bypass state registration requirements to pitch whatever it is they are promising. In almost all cases, the only profits go to the promoters of these schemes, and investors are generally left holding the empty bag.
  1. Promissory Notes. More empty promises can leave these notes worthless. Sometimes, promissory notes can be a good investment but that usually applies to sophisticated or corporate investors. Those that are marked broadly to the general public often turn out to be scams.
  1. Senior Investment Fraud. This is where seniors are targeted with all kinds of fraudulent schemes to bilk them out of their money. They can involve unsecured promissory notes and other investments that are either fraudulent or unsuitable for the senior based upon their particular financial needs.
  1. High-Yield Investments. An easy one, the tip from the brother-in-law. You know, promises of triple-digit returns and risk-free guaranteed high yield instruments. Sure. I'll tell him when he comes in.
  1. Internet Fraud. Becoming more and more common where various promoters are using what are now known as online boiler rooms and fake Web sites to lure investors into what is called a "pump-and-dump" stock scheme. Generally, they promote penny or microcap stocks on the Internet.
  1. Affinity Fraud. The baddies are increasingly targeting religious, ethnic, cultural, and professional groups.
  1. Variable Annuity Sales Practices. Seniors beware of those high surrender fees and steep sales commissions. NASAA is concerned that variable annuities are being sold to senior investors despite the fact that these products may not be suitable investments for most seniors who may need quick access to their money for medical or other emergencies.
  1. Oil & Gas Scams. Promoters promising quick profits because of record levels in oil and continued middle East instability.

While we're at it, keep your eyes open for penny stocks, private placements, and investment seminars. Franklin Widmann, NASSA's president and chief of the New Jersey bureau of Standards, warns investors to contact their state or provincial securities regulator with any questions about an investment product, broker, or advisor, before making an investment. "One phone call can save a lot of money and heartache."

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access