|
Investment
Swindles: While the vast majority of persons in the futures industry and other sectors of the investment community serve the investing public conscientiously and ethically, there are inevitably those few who seek to exploit the trust which others have labored so hard to earn. This report has been prepared as a part of NFA's continuing public education efforts to assist you in recognizing and avoiding such individuals. Contents The Multi-Billion Dollar Business of Investment Fraud Who are the Investment Swindlers? Who are the Victims of Investment Fraud? How Investment Swindlers Find (or Attract) Their Victims Techniques Investment Swindlers Use Several Investment Swindles and How They Worked Questions That Can Turn Off an Investment Swindler Before You Invest, Investigate Finally, Don't Lose Touch with Your Money The Multi-Billion Dollar Business of Investment Fraud Americans are investors. We purchase stocks and bonds, contribute to savings programs, own real estate, participate in futures and options markets, acquire collectibles, provide start-up capital for new business ventures, buy franchises, and the list goes on. The strength of our economy is in large measure the product of our combined investments. Perhaps more so than any people in the world, we enjoy an ever-expanding variety of investments to choose from, coupled with the freedom to make our own investment decisions. It's our money and we can invest it as we wish. Unfortunately, some unscrupulous promoters abuse our freedom to choose by concocting investment schemes that have zero possibility of making money for anyone other than themselves. Such persons promise investment rewards they cannot possibly deliver and have no intention of delivering. They are swindlers. Many of them are very good at it. Their annual take through lying and deceit is in the billions of dollars. If one estimate of $10 billion a year lost to investment fraud is accurate, that's more money than the combined annual profits of the nation's three major automakers! Some say even that estimate may be too low. Successful investment swindlers use every trick in the book, and some that aren't even recorded, to convince you that none of the descriptions and precautions in the following pages apply to them. After all, they are offering you a once-in-a-lifetime opportunity to make a lot of money quickly and you do trust them, don't you? As will be seen, some of their methods of gaining your trust are truly ingenious. Who are the Investment Swindlers? They are a faceless voice on a telephone. Or a friend of a friend. They may perform surgery on their victims' savings from a dingy back office or boiler-room or from an opulent suite in the new bank building. They may wear three-piece suits or they may wear hard hats. They may have no apparent connection to the investment business or they may have an alphabet-soup of impressive letters following their names. They may be glib and fast-talking or so seemingly shy and soft-spoken that you feel almost compelled to force your money on them. The first rule of protecting yourself from an investment swindle is thus to rid yourself of any notions you might have as to what an investment swindler looks like or sounds like. Indeed, some swindlers don't start out to be swindlers. There are case histories in which individuals who held positions of trust and esteem-accountants, attorneys, bona fide investment brokers and even doctors-have sacrificed their ethics for the fast buck of running an investment scam. In still other cases, investment programs that began with legitimate intentions went sour through happenstance or poor management--leading the promoter to mishandle or abscond with investors' capital. Whether an investment is planned as a scam or simply becomes one, the result is the same. This is why, as we will discuss, protecting your savings against fraud involves at least three steps: Carefully check out the person and firm you would be dealing with; take a close and cautious look at the investment offer itself; and continue to monitor any investment that you decide to make. No one of these precautions alone may be sufficient. Who are the Victims of Investment Fraud? If you are absolutely certain it could never be you, the investment swindler starts with a big advantage. Investment fraud generally happens to people who think it couldn't happen to them. Just as there is no typical profile for swindlers, neither is there one for their victims. While some scams target persons who are known or thought to have deep pockets, most swindlers take the attitude that everyone's money spends the same. It simply takes more small investors to fund a large fraud. In fact, some swindlers deliberately seek out families that may have limited means or financial difficulties--figuring such persons may be particularly receptive to a proposal that offers fast and large profits. A favorite pitch is that small investors can become rich only if they learn and employ the investment strategies used by wealthy persons. Naturally, the swindler will teach them! Although victims of investment fraud can differ from one another in many ways, they do, unfortunately, have one trait in common: Greed that exceeds their caution. Plus a willingness to believe what they want to believe. Movie actors and athletes, professional persons and successful business executives, political leaders and internationally famous economists have all fallen victim to investment fraud. So have hundreds of thousands of others, including widows, retirees and working people--people who made their money the hard way and lost it the fast way. How Investment Swindlers Find (or Attract) Their Victims Swindlers attempt to mimic the sales approaches of legitimate investment firms and salespersons. Thus, the fact that someone may contact you in a particular way--by phone, mail, or even through a referral--should not in itself be viewed as an indication that the investment is or isn't shady. Many totally reputable firms also use the same methods to effectively and economically identify individuals who may have an interest in their investment products and services. Bearing in mind that investigate before you invest is good advice no matter how you are approached, these are some of the methods con men commonly employ to contact their victims-to-be. * Telephone So-called telephone boiler-rooms remain a favorite way for swindlers and their sales squads to quickly contact large numbers of potential investors. Even if a swindler has to make 100 or 200 phone calls to find a mooch (one of the terms swindlers use for their victims), he figures that the opportunity to pocket thousands of dollars of someone's savings is still good pay for the time and cost involved. Some sellers of fraudulent investment deals buy bona fide mailing lists--names and addresses of persons who, for example, subscribe to a particular investment-related publication, who have responded to previous direct mail offers, or who have other characteristics that swindlers look for. In the hope of avoiding notice by postal authorities, mail order swindlers may not make a direct or immediate pitch for your money. Rather, they often seek to entice you to write or phone for more information. Then comes a call from the salesperson or the person who closes the deal. Some may phone even if you didn't respond to the mailing. * Advertisements A newspaper or magazine ad may offer (or at least hint at )profit opportunities far more attractive than available through conventional investments. Once you've taken the bait, the swindler will then attempt to "set the hook." Even though investment crooks know that regulatory agencies regularly monitor ads in major publications, some nevertheless use such publications in the hope of being able to hit-and-run before an investigator shows up. Others advertise in narrowly circulated publications they think regulators may be less likely to see. * Referrals One of the oldest schemes going involves paying fast, large profits to initial investors (actually from their own or other peoples' investments) knowing that they are likely to recommend the investment to their friends. And these friends will tell their friends. Soon, the swindler no longer needs to find new victims; they will find him. * The "Reputable" Business Some swindlers go first class. Using profits from previous swindles, they rent plush offices, hire an interior decorator and professional-sounding receptionist and open what has the appearance--but not the reality of a reputable investment firm. You may even have to phone for an appointment, and once there don't be surprised to be kept waiting (that's intended to make you all the more eager). This kind of swindler's success depends on how long he can keep his victims from knowing they are being cheated. Investors are assured that their large profits are being reinvested to earn even larger profits. Such a swindler may join local civic groups, contribute to charities, and generally play the role of solid citizen. |
