OLYMPIA, Wash. (3/7/08)--Credit unions can help alert members to the top investment scams circulating in several states. The Washington State Department of Financial Institutions (DFI) Securities Division last week announced the Top 10 investment scams in that state. Most are perennial favorites of scam artists who dress them up with the latest investment angle or news, said DFI, the state credit union regulator. Credit unions can tell their members to understand what they are investing in. "Investors can protect themselves, and their financial futures, by investing a little more time before investing their money," said DFI Director Scott Jarvis, who noted that "if it sounds too good to be true, it probably is." The top scams in Washington State were:
* Ponzi schemes. A business supposedly earns money to pay high returns to investors. However, it actually earns little or no funds; instead, it relies on new investors to pay the early depositors' "profits." The scheme collapses when new investor money runs dry. * Fraud against seniors. Older investors with money are targeted by complex investment scams involving unregistered securities, promissory notes, charitable gift annuities, viatical settlements and Ponzi schemes promising inflated returns. * Promissory notes. Short-term debt instruments are issued by little-known or nonexistent companies promising high returns (such as 15% monthly) with little or no risk. When interest rates are low, these notes lure investors hoping for higher, fixed returns--which never arrive. * Unscrupulous brokers. While stockbrokers' assistance is often helpful for many investors, investors should educate themselves so they can detect any problems that signal an unscrupulous operation. * Affinity fraud. This fraud preys on human nature, where people trust people like themselves. Scammers use religious or ethnic identity to gain the victim's trust, and no group is immune from this type of fraud. * Unlicensed securities sellers. High-risk investments--such as promissory notes, oil and gas deals, gold or mining stock and viatical settlements--may be sold by unlicensed individuals. Scam artists entice independent sales agents into selling investments about which they know little. * Prime bank schemes. Con artists promise investors triple-digit returns through access to portfolios of elite or "prime" banks. Today, they it is common to avoid the term "prime bank" and underplay the banks' role by referring to "risk free guaranteed high yield instruments" or something similar. They often reference "treasury securities," "letters of credit," or similar methods. Scammers also push "tax free" money by using "offshore accounts" to entice investors. * Internet fraud. Spam e-mails, chat rooms and online investment "newsletters" often promote stocks with hype and false information, offering a "quick profit" to lure investors who buy and drive up the price of the stock, which the promoter then sells. Investors should ignore e-mail offers, especially those from individuals needing "help" to deposit large sums. * Free lunches and dinners. A yearlong study of free-meal investment seminars by state securities regulators across the nation found abusive tactics at "educational" free lunch and dinner seminars. All were actually sales presentations, and 13% were fraudulent. * Telemarketing fraud. Boiler rooms and high-pressure telephone sales operations peddle illegal or fraudulent investment products nationwide.
Each year, Washington residents alone lose between $50 million and $100 million in such scams. The amounts reported may be only a small fraction of actual losses, DFI said.