Regulators Warn: Don't Turn Low Yield Blues into "I Can't Believe I Lost the Whole Thing"

Pennsylvania Securities Commission Offers Caution that Higher Yields Bring Higher Risks

HARRISBURG, Pa., May 24, 2012 /PRNewswire-USNewswire/ -- If you put $1,000 into a federally-insured Certificate of Deposit today at 5 percent interest compounded annually, you could expect to double your money in 15 years.  But these days, you're lucky to get 1 percent interest on a time deposit.  So how long would it take for $1,000 to become $2,000 at that rate?  Would you believe 70 years?

It's this new reality that has people planning for retirement "chasing yields" and looking for almost any deal that claims to offer the opportunity to help rebuild sagging investment portfolios overnight.  And that has the fraud experts at the Pennsylvania Securities Commission staying up late at night.

"The laws of economics haven't repealed because the economy went sour in 2008," says Securities Commission Chairman Robert Lam. "If someone legitimately promises high yield, it comes with significant risk.  The record low interest rates have created a fertile ground for people looking to separate people from their hard-earned savings."

The state securities commission, essentially the Commonwealth's consumer protection bureau for investors, has agents reviewing advertisements and online offerings every day that offer promises of high yields. "Our rule of thumb hasn't changed.  If the promised return sounds too good to be true, it probably is," said Commissioner Vince Gastgeb. "The truth is, though, that the bar of credibility has been lowered.  With bank account interest rates typically under one percent, a promise of 10 percent – which seemed ho-hum a couple of years back – sounds like an investment jackpot today to the soon-to-be retiree who's trying to build up a portfolio that took a 40 or 50 percent hit two years ago."

Commissioner Steven Irwin said the commission concerns extended beyond the temptations for older Pennsylvanians to move retirement funds from low-yielding fixed return investments to sometimes exotic and higher-yielding instruments that carry with them a much higher risk and volatility.

"Yield-starved investors may be more easily enticed into fraudulent schemes that can be cloaked as private placement offerings, promissory notes, securitized life settlement contracts and investments in energy, precious metals and distressed real estate, all of which are contained in the Pennsylvania Securities Commission's current list of Top Investor Traps," Irwin said. "But beyond that risk there is a growing list of outright cons and scams."

Lam warned, "Anyone promising high yield or high returns with little or no risk should be approached with a high degree of skepticism." 

To help investors, the commission has posted a "Three Point Test for the Promise of High-Yield Investments" on the Pennsylvania Securities Commission website (www.psc.state.pa.us):

• Are claims made for the investment realistic? Use common sense and get a professional, third-party opinion when presented with investment opportunities that seem to offer unusually high returns in comparison to other investment options.
• Has the seller given you written information that fully explains the investment? Request written information that fully explains the investment, such as a prospectus or offering circular. The documentation should contain enough clear and accurate information to allow you or your investment adviser to evaluate and verify the particulars of the investment.  If it's not in writing, exercise extra caution.
• Are the seller and investment licensed and registered in your state? It's easy to check.  Call the Pennsylvania Securities Commission toll free at 1-800-600-0007 or file a request online at www.psc.pa.gov. If the salesman or sales firm or the specific offering is not on file, they may be operating illegally. 

SIMPLE COMPOUND INTEREST* TABLE

* Interest compounded annually on anniversary date of deposit.

For more information, visit www.psc.state.pa.us or call 717-787-8061.

SOURCE Pennsylvania Securities Commission (PSC)