'Top 10 Investment Scams' List Released by State Securities Regulators

Apr 23, 2001, 01:00 ET from North American Securities Administrators Association, Inc.

    WASHINGTON, April 23 /PRNewswire Interactive News Release/ -- State
 securities regulators today released a list of the top 10 investment scams
 they are combating. New to the third annual list are risky payphone and ATM
 investments, often sold by independent life insurance agents, and so-called
 "callable" certificates of deposit sold to older Americans despite their 10-
 to 20-year maturities.
     "Our volatile markets have investors, particularly older Americans
 dependent on predictable interest income, looking for safe havens," said
 Deborah Bortner, president of the North American Securities Administrators
 Association (NASAA) and Washington State's director of securities. "So
 scammers are pitching their investments as low risk and high return. That's an
 impossible combination. The higher the return, the higher the risk."
     Securities fraud costs Americans billions of dollars each year, state
 securities regulators estimate.
     While the new list of scams includes repeat offenders, such as broadly
 marketed promissory notes, bogus prime bank schemes and risky viatical
 settlements (interests in the life insurance policies of supposedly terminally
 ill people), the people selling them are moving out of the boiler room and
 onto Main Street.
     "What's new is scammers are targeting independent life insurance agents to
 act as sellers," said Bortner. "While the vast majority of agents are doing
 what they should and looking out for their clients, a growing minority, lured
 by high commissions, are relying solely on marketing claims that are
 misleading or false."
     Here is a list of the top 10 scams, ranked roughly in order of prevalence
 or concern:
 
     1.    Unlicensed individuals, such as life insurance agents, selling
           securities. To verify that a person is licensed or registered to
           sell securities, call your state securities regulator. If the person
           is not registered, don't invest. In Indiana, 11 of the 16 "cease and
           desist" orders issued by the Securities Division in the first
           quarter of this year have targeted insurance agents who were selling
           securities without the proper license. Most were independent life
           insurance agents.
 
     2.    Affinity group fraud. Many scammers use their victim's religious or
           ethnic identity to gain their trust -- knowing that it's human
           nature to trust people who are like you -- and then steal their life
           savings. From "gifting" programs at some churches to foreign
           exchange scams targeted at Asian Americans, no group seems to be
           without con artists who seek to exploit others for financial gain.
           In Texas, an Indian immigrant who taught Sunday school took fellow
           Indian parishioners -- roughly 40 families in all -- for over $1
           million.
 
     3.    Payphone and ATM sales. In early March, 25 states and the District
           of Columbia announced actions against companies and individuals -
           many of them independent life insurance agents -- that took roughly
           4,500 people for $76 million selling coin-operated customer-owned
           telephones. Investors leased payphones for between $5,000 and $7,000
           and were promised annual returns of up to 15 percent. Regulators say
           the largest of these investments appeared to be nothing but Ponzi
           schemes.
 
     4.    Promissory notes. Short-term debt instruments issued by little-known
           or sometimes non-existent companies that promise high returns --
           upwards of 15 percent monthly -- with little or no risk. These notes
           are often sold to investors by independent life insurance agents. In
           Indiana, 18 elderly investors lost some $1.4 million in a promissory
           note scam. An 80-year-old woman lost her life savings of $324,000.
           The perpetrators -- who diverted the money to offshore bank
           accounts, made first-class business trips to China, India and Greece
           and bought expensive cars -- even knelt in prayer with their victims
           to gain their trust.
 
     5.    Internet fraud. Scammers use the wide reach and supposed anonymity
           of the Internet to "pump and dump" thinly traded stocks, peddle
           bogus offshore "prime bank" investments and publicize pyramid
           schemes. Roughly half the states have Internet surveillance programs
           that watch for fraud or investigate investor complaints. Regulators
           urge investors to ignore anonymous financial advice on the Internet
           and in chat rooms.
 
     6.    Ponzi/pyramid schemes. Always in style, these swindles promise high
           returns to investors, but the only people who consistently make
           money are the promoters who set them in motion, using money from
           previous investors to pay new investors. Inevitably, the schemes
           collapse. Ponzi schemes are the legacy of Italian immigrant Charles
           Ponzi. In the early 1900s, he took investors for $10 million by
           promising 40 percent returns from arbitrage profits on International
           Postal Reply Coupons.
 
     7.    "Callable" CDs. These higher-yielding certificates of deposit won't
           mature for 10- to 20-years, unless the bank, not the investor,
           "calls," or redeems, them. Redeeming the CD early may result in
           large losses -- upwards of 25 percent of the original investment. In
           Iowa, for example, a retiree in her 70s invested over $100,000 of
           her 97-year-old mother's money in three "callable" CDs with 20-year
           maturities. Her intention, she told her broker, was to use the money
           to pay her mother's nursing home bills. Regulators say sellers of
           callable CDs often don't adequately disclose the risks and
           restrictions.
 
     8.    Viatical settlements. Originated as a way to help the gravely ill
           pay their bills, these interests in the death benefits of terminally
           ill patients are always risky and sometimes fraudulent. The insured
           gets a percentage of the death benefit in cash, investors get a
           share of the death benefit when the insured dies. Because of
           uncertainties predicting when someone will die, these investments
           are extremely speculative. In a new twist, Pennsylvania regulators
           say "senior settlements" -- interests in the death benefits of
           healthy older people -- are now being offered to investors.
 
     9.    Prime bank schemes. Scammers promise investors triple-digit returns
           through access to the investment portfolios of the world's elite
           banks. Purveyors of these schemes often target conspiracy theorists,
           promising access to the "secret" investments used by the Rothschilds
           or Saudi royalty. In North Dakota, state securities regulators are
           alleging a small group of salesmen, including a local pastor, used
           religion and family ties to bilk investors out of $2 million in a
           prime bank scam.
 
     10.   Investment seminars.  Often the people getting rich are those
           running the seminar, making money from admission fees and the sale
           of books and audiotapes.  These seminars are marketed through
           newspaper, radio and TV ads and "infomercials" on cable television.
           Regulators urge investors to be extremely skeptical about any get-
           rich-quick scheme.
 
     To check out an investment or salesperson, contact your state securities
 regulator.  Their phone number is in the white pages of your phone book under
 "government" or available online at www.nasaa.org.
 
                     MAKE YOUR OPINION COUNT -  Click Here
                http://tbutton.prnewswire.com/prn/11690X82822095
 
 

SOURCE North American Securities Administrators Association, Inc.
    WASHINGTON, April 23 /PRNewswire Interactive News Release/ -- State
 securities regulators today released a list of the top 10 investment scams
 they are combating. New to the third annual list are risky payphone and ATM
 investments, often sold by independent life insurance agents, and so-called
 "callable" certificates of deposit sold to older Americans despite their 10-
 to 20-year maturities.
     "Our volatile markets have investors, particularly older Americans
 dependent on predictable interest income, looking for safe havens," said
 Deborah Bortner, president of the North American Securities Administrators
 Association (NASAA) and Washington State's director of securities. "So
 scammers are pitching their investments as low risk and high return. That's an
 impossible combination. The higher the return, the higher the risk."
     Securities fraud costs Americans billions of dollars each year, state
 securities regulators estimate.
     While the new list of scams includes repeat offenders, such as broadly
 marketed promissory notes, bogus prime bank schemes and risky viatical
 settlements (interests in the life insurance policies of supposedly terminally
 ill people), the people selling them are moving out of the boiler room and
 onto Main Street.
     "What's new is scammers are targeting independent life insurance agents to
 act as sellers," said Bortner. "While the vast majority of agents are doing
 what they should and looking out for their clients, a growing minority, lured
 by high commissions, are relying solely on marketing claims that are
 misleading or false."
     Here is a list of the top 10 scams, ranked roughly in order of prevalence
 or concern:
 
     1.    Unlicensed individuals, such as life insurance agents, selling
           securities. To verify that a person is licensed or registered to
           sell securities, call your state securities regulator. If the person
           is not registered, don't invest. In Indiana, 11 of the 16 "cease and
           desist" orders issued by the Securities Division in the first
           quarter of this year have targeted insurance agents who were selling
           securities without the proper license. Most were independent life
           insurance agents.
 
     2.    Affinity group fraud. Many scammers use their victim's religious or
           ethnic identity to gain their trust -- knowing that it's human
           nature to trust people who are like you -- and then steal their life
           savings. From "gifting" programs at some churches to foreign
           exchange scams targeted at Asian Americans, no group seems to be
           without con artists who seek to exploit others for financial gain.
           In Texas, an Indian immigrant who taught Sunday school took fellow
           Indian parishioners -- roughly 40 families in all -- for over $1
           million.
 
     3.    Payphone and ATM sales. In early March, 25 states and the District
           of Columbia announced actions against companies and individuals -
           many of them independent life insurance agents -- that took roughly
           4,500 people for $76 million selling coin-operated customer-owned
           telephones. Investors leased payphones for between $5,000 and $7,000
           and were promised annual returns of up to 15 percent. Regulators say
           the largest of these investments appeared to be nothing but Ponzi
           schemes.
 
     4.    Promissory notes. Short-term debt instruments issued by little-known
           or sometimes non-existent companies that promise high returns --
           upwards of 15 percent monthly -- with little or no risk. These notes
           are often sold to investors by independent life insurance agents. In
           Indiana, 18 elderly investors lost some $1.4 million in a promissory
           note scam. An 80-year-old woman lost her life savings of $324,000.
           The perpetrators -- who diverted the money to offshore bank
           accounts, made first-class business trips to China, India and Greece
           and bought expensive cars -- even knelt in prayer with their victims
           to gain their trust.
 
     5.    Internet fraud. Scammers use the wide reach and supposed anonymity
           of the Internet to "pump and dump" thinly traded stocks, peddle
           bogus offshore "prime bank" investments and publicize pyramid
           schemes. Roughly half the states have Internet surveillance programs
           that watch for fraud or investigate investor complaints. Regulators
           urge investors to ignore anonymous financial advice on the Internet
           and in chat rooms.
 
     6.    Ponzi/pyramid schemes. Always in style, these swindles promise high
           returns to investors, but the only people who consistently make
           money are the promoters who set them in motion, using money from
           previous investors to pay new investors. Inevitably, the schemes
           collapse. Ponzi schemes are the legacy of Italian immigrant Charles
           Ponzi. In the early 1900s, he took investors for $10 million by
           promising 40 percent returns from arbitrage profits on International
           Postal Reply Coupons.
 
     7.    "Callable" CDs. These higher-yielding certificates of deposit won't
           mature for 10- to 20-years, unless the bank, not the investor,
           "calls," or redeems, them. Redeeming the CD early may result in
           large losses -- upwards of 25 percent of the original investment. In
           Iowa, for example, a retiree in her 70s invested over $100,000 of
           her 97-year-old mother's money in three "callable" CDs with 20-year
           maturities. Her intention, she told her broker, was to use the money
           to pay her mother's nursing home bills. Regulators say sellers of
           callable CDs often don't adequately disclose the risks and
           restrictions.
 
     8.    Viatical settlements. Originated as a way to help the gravely ill
           pay their bills, these interests in the death benefits of terminally
           ill patients are always risky and sometimes fraudulent. The insured
           gets a percentage of the death benefit in cash, investors get a
           share of the death benefit when the insured dies. Because of
           uncertainties predicting when someone will die, these investments
           are extremely speculative. In a new twist, Pennsylvania regulators
           say "senior settlements" -- interests in the death benefits of
           healthy older people -- are now being offered to investors.
 
     9.    Prime bank schemes. Scammers promise investors triple-digit returns
           through access to the investment portfolios of the world's elite
           banks. Purveyors of these schemes often target conspiracy theorists,
           promising access to the "secret" investments used by the Rothschilds
           or Saudi royalty. In North Dakota, state securities regulators are
           alleging a small group of salesmen, including a local pastor, used
           religion and family ties to bilk investors out of $2 million in a
           prime bank scam.
 
     10.   Investment seminars.  Often the people getting rich are those
           running the seminar, making money from admission fees and the sale
           of books and audiotapes.  These seminars are marketed through
           newspaper, radio and TV ads and "infomercials" on cable television.
           Regulators urge investors to be extremely skeptical about any get-
           rich-quick scheme.
 
     To check out an investment or salesperson, contact your state securities
 regulator.  Their phone number is in the white pages of your phone book under
 "government" or available online at www.nasaa.org.
 
                     MAKE YOUR OPINION COUNT -  Click Here
                http://tbutton.prnewswire.com/prn/11690X82822095
 
 SOURCE  North American Securities Administrators Association, Inc.