Many consumers invest their money to build wealth.
When it comes to investments, it’s wise to rely on professionals: the Ohio Department of Commerce and the U.S. Securities and Exchange Commission (SEC) are the state and federal experts. The Ohio Department of Commerce’s Division of Securities has an investor alert designed to help expose scammers so you don’t fall prey to these all-too-common cons:
- Affinity fraud: With this kind of fraud, a friend or member of a club or organization uses his or her affiliation with that organization to establish the credibility of a proposed investment. This can happen within a religious group, charity, business/professional organization, social club, fraternal club or any other established group. The promoter uses her or her status to build trust with would-be investors. Never let a common bond inspire automatic trust with someone. It is vital to thoroughly and independently research any investment offer.
- Unregistered products /unlicensed sales representatives: Generally, securities such as stocks and bonds can be handled only by licensed salespeople, so it’s a red flag when anyone without a license pitches you an opportunity to buy securities. Many of these situations involve unregistered investments that are promoted as limited-risk or no-risk and high-profit.
- Ponzi schemes: Ponzi schemes typically operate as phony “investment management services.” The portfolio manager may claim to offer a handsome profit, but when you start asking to withdraw funds, the manager merely uses money from new investors to pay the existing clients. No real investments are actually made, and the fraudulent structure often collapses when new money dries up – so little or no funds are available to provide payouts to earlier investors.
- Pyramid investments: These unlawful business practices are structured so that new “investors” are recruited to sell a product or service but are also responsible for bringing additional investors into the scheme. According to the Ohio Department of Commerce, “Each investor pays the person who recruited them for the chance to sell this item. The recipient must share the proceeds with those at the high levels of the pyramid structure.”
- Investment seminars: If you’re invited to an investment seminar, be wary of promises that tout big profits for little or no work. Examples from the Ohio Department of Commerce include house flipping, stock market day trading, commodity investments and other get-rich schemes. The promoters get rich from seminar fees and/or the sale of books and audiotapes. Before you attend a seminar, the Ohio Department of Commerce suggests researching the host company or individual to check for a history of complaints or fraud.
- Oil and gas wells: Although legitimate opportunities for oil and gas investments do exist, many fraudulent oil and gas deals have a physical presence outside the state. Out-of-state schemes, according to the Ohio Department of Commerce, make it hard to uncover the fraud and less likely that “investors” check up on the physical well site or a nonexistent company building.
- Real estate: Certainly, real estate can be a legitimate investment opportunity for Ohioans, but regulators see Real Estate Investment Trusts (REITs) as potential trouble spots. Although conventional REITs traded on a stock exchange may be legitimate, non-traded REITs sold directly to investors may be much riskier.
The SEC identifies these red flags of investment fraud:
- Unlicensed investment professionals
- Aggressive sellers who may provide exaggerated or false credentials
- Offers that sound “too good to be true”
- “Risk-free” investment opportunities
- Promises of great wealth and guaranteed returns
- “Everyone is buying it” pitches
- Pressure to invest right now
- Over-the-top, sensational pitches that may have fake testimonials
- Unsolicited pitches seeking to obtain your personal information
- Requests for investment payment by credit card, gift card or wiring money abroad or to a personal account
More information, including how to check the background of an investment professional, can be found at the SEC’s website at www.investor.gov/. The SEC also has an investor assistance phone line: 800-732-0330.
To help avoid potential securities fraud, investors can contact the Ohio Department of Commerce, Division of Securities’ Investor Protection Hotline at 877-683-7841.
Consumers who suspect a scam or who have problems they can’t resolve should contact the Ohio Attorney General’s Office at www.OhioProtects.org or 800-282-0515.