Scam of the day – September 28, 2017 – Hurricane Harvey and Irma investment scams

While Hurricanes Harvey and Irma are long gone, the damage they brought is still with us as recovery and restoration efforts continue. Meanwhile, scammers seeking to take advantage of the storms initially focused their efforts on phony charity solicitations are now turning their focus to a new range of scams involving investment scams in which you are solicited to invest in companies purportedly in a position to profit from the vast amounts of money that will be spent in cleanup, repair and recovery efforts.

While some of the solicitations will be for phony companies, in other instances, scammers will be luring you to invest in thinly traded companies that the scammers tell you will profit tremendously from the recovery efforts, however their misrepresentations are made merely to induce their victims to invest and drive the prices of the stock up, at which point the scammers sell their stock at a great profit.  When the truth becomes known, the stock price drops and investors are left with substantial losses.  This type of scam is often referred to as a pump-and-dump scam.

These hurricane recovery investment scams occurred often following Hurricane Katrina in 2005 with the SEC taking legal action against a number of the scammers perpetrating these frauds.

TIPS

Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her.  You can also check with your own state’s securities regulation office for similar information.  Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.

You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular  investment adviser.  It is also important to remember that you should never  invest in something that you do not completely understand.  This was a mistake that many of Bernie Madoff’s victims made.  You also may want to check out the SEC’s investor education website at www.investor.gov.

Scam of the day – August 27, 2017 – Gold scams

Gold is becoming an increasingly popular investment with concerns that the stock market’s record setting rally may have peaked.  In addition, in times of political turmoil, such as we are experiencing at this time, gold becomes more attractive to investors.  Unfortunately, along with legitimate gold merchants, there are many scammers who often contact their victims by telephone or email as well as through radio, television and online advertisements.  Sometimes these scammers sell overpriced gold or even sell gold that they never deliver to their victims.

TIPS

An essential rule of investing is to never invest in anything that you don’t fully understand.    Another important thing to remember is that merely because an advertisement appears in legitimate media, such as television and radio does not mean that the company doing the advertising is legitimate.  Most media do little or no investigation into whether or not an advertiser is scamming the public.

Specifically for prospective gold purchasers, you should make sure that the dealer selling you gold is a reputable dealer which you can do by checking out the dealer with the American Numismatic Association at its website www.Money.org.  Also do not have the dealer store your gold for you.  Always take delivery of the gold yourself.  Finally, only do business with dealers that offer a buy-back guarantee within 72 hours.  As for gold sellers who contact you by phone and pressure you to buy, you should just hang up the phone.

Scam of the day – January 30, 2017 – SEC brings charges in Hamilton Ponzi scheme

The Broadway show Hamilton has been one of the most popular shows in years.  Tickets are hard to come by and when they can be purchased, they often come at a steep price through ticket resellers.  Anything popular with the public is going to be popular with scam artists, the only criminals we refer to as artists, and so it is not surprising that Hamilton tickets featured prominently in a Ponzi scheme alleged by the Securities and Exchange Commission (SEC) in charges it has brought against Joseph Meli and Matthew Harriton as well as companies they operated.

According to the SEC, since 2015 Meli and Harriton represented to potential investors that they had special relationships with the promoters of major concerts and hit Broadway shows including Hamilton that enabled them to be able to purchase large blocks of tickets at a low price and then resell the tickets at tremendous profits that would be passed along to the investors.

According to the SEC, however, very little ticket reselling went on. Instead, Meli and Harriton used money from new investors to pay earlier investors and keep the lion’s share of the investments totaling at least 48 million dollars for themselves, which is the classic format of a Ponzi scheme.

TIPS

Ponzi schemes have been an effective fraud tactic for more than a century because they are effective.  It may seem to a potential investor that the scheme is legitimate because he or she can see earlier investors earning profits.  However, those profits are illusory.

Never invest in anything unless you totally understand the investment and have also investigated the people seeking your money.  Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her.  You can also check with your own state’s securities regulation office for similar information.  Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.   You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular  investment adviser.  It is also important to remember that you should never  invest in something that you do not completely understand.  This was a mistake that many of Bernie Madoff’s victims made.  You also may want to check out the SEC’s investor education website at www.investor.gov.  Scammers can be very convincing and it may sound like there is a great opportunity for someone to make some money, but you must be careful that the person making money is not the scam artist taking yours.

Scam of the day – November 9, 2014 – Teenager scams $130,000 from investors

Nineteen year old David Topping was arrested in North Carolina and charged with selling investors $130,000 of fraudulent investments.  Topping contacted his twenty victims through cold calls and social media including Facebook and LinkedIn.  He enticed his victims with promises of monthly returns of 6.24% for the investments in his company, Stark Innovations LLC which he said dealt with international trade.  He further represented to his victims that the investments were totally without risk. Finally he also represented to his victims that the company was socially responsible, giving 5% of its annual profits to local charities.  Of course the entire investment was a scam.  To make things first, Topping was not licensed to sell securities, a fact that would have been apparent to anyone who did their due diligence research and had looked him up with the Securities Division of the North Carolina Secretary of State.

TIPS

No one should ever invest in anything until they have done a due diligence investigation into both the person selling you the investment and the investment itself.  No one should ever invest in anything unless you truly understand the investment.  Legendary Warren Buffet resisted investing in high technology companies until he felt comfortable that he understood the companies  and what they did.  Many intelligent people invested with Ponzi schemer Bernie Madoff without understanding how his investments worked.  If they had investigated his strategy, it would have been apparent that it was a sham.  Why should you trust an investment being sold to you through a cold call or on social media that makes outrageous promises that are too good to be true?  Do your homework and protect your money.

Scam of the day – August 31, 2014 – Ponzi Investment scammer convicted

It is interesting to note that when it comes to investment scams, sophisticated investors are often the victims.  This was true in the Ponzi investment scam of Bernie Madoff and it was true of the investment scam of recently convicted David Rose.  Rose specialized in scamming doctors and dentists who he lured into investing in, what they thought, were companies doing research and development in the medical field.  Rose was, as many scam artists are, a slick operator.  He met with clients and provided them with private placement memorandums that described in detail how the money was to be invested.  Unfortunately, of the two million dollars he took from investors, none of it was actually invested in anything.  Instead, Rose used the money to buy luxury boats and cars, jewelry as well as for other personal uses.

TIPS

The rules for protecting yourself from investment scams are always the same.  Before investing in anything, you should make sure you understand the investment and carefully investigate both the investment and the person advising you to make the investment.  In addition, a red flag in both the Madoff scam and the Rose scam is when the person advising you to make the investment is also the custodian of the account.  They should never be the same person.  Always have a separate broker-dealer from your individual adviser.  This way the actual funds and investments are monitored by a third party.

Scam of the day – May 16, 2014 – Bernie Madoff update

Richard Breeden, the special master administering the claims of the victims of convicted Ponzi schemer Bernie Madoff who stole 50 billion dollars from his victims has recently indicated that the number of claimants has risen to 51,700 seeking redress from the 4 billion dollars  of funds gathered by federal prosecutors through recovery against Madoff related forfeitures.  In addition, there is another 9.8 billion dollars of funds recovered by bankruptcy trustee, Irving Picard.  available through recoveries and settlements that will be used to compensate victims as this case which goes back to December of 2008 drags on.  Although many of the victims will get some funds returned to them, they will, by no means, be made whole for their losses.  This is a good time for all investors to look back at the mistakes that were made by Madoff’s victims and learn how to avoid them.  As you may remember, Madoff did not invest any of the money he received from investors who gave him money.  Instead, he used the money for his own purposes and paid off older investors with money received from newer investors.  Ultimately, this house of cards came toppling down, as it does with all Ponzi schemes when too many people ask for their money and the fraud becomes exposed.

TIPS

No one should ever invest in anything that they do not totally understand.  In Madoff’s situation, with 20/20 hindsight we can see that his investment strategy was impossible to achieve and investors should not have relied on him.  They should have tried to understand the strategy and if they could not understand it, which no one would have been able to do, they should not have invested.  In addition to Madoff’s advice, I would also warn you against ever investing with an investment adviser such as Madoff who both makes the investment decisions and also holds the assets.  These activities should be divided between an investment adviser and a separate broker-dealer who actually holds the investments.  Had this elemental rule been followed by Madoff investors, they would have immediately known that there were no investments and that Madoff’s investment strategy was a scam.

Scam of the day – May 4, 2014 – Precious metals scams

Congressional hearings last week highlighted the problem of scam artists  fraudulently selling gold and other precious metals to people, many of them elderly.  Often these scams start with a telemarketing call to the victim in which he or she is told “inside” information about an upcoming rise in the prices for gold, silver or other precious metals.  The victims are then goaded into buying the metals at an inflated price and then must often pay additional commission and storage fees that result in the victims losing thousands of dollars.  Since 2001, it is estimated that precious metals fraud has cost consumers 300 million dollars.  Although the Commodity Futures Trading Commission and the Federal Trade Commission both have jurisdiction in the advertising and sale of precious metals and have shut down some scammers, their record in protecting consumers from precious metal scams is lacking.

TIPS

No one should ever purchase an investment unless they fully understand the investment and no one should ever make an investment decision based solely on a telemarketing call.  Precious metals can be a part of a legitimate investment portfolio, however, this is a sophisticated investment that should only be done by people who are fully educated and informed not just about the investment itself, but also the brokers and others selling the particular investment.

Scam of the day – March 3, 2014 – Happy birthday Charles Ponzi

Happy birthday to Charles Ponzi, the man credited with being the first to exploit the simple scam that has come to be known as a Ponzi scheme.  Ponzi was born in 1882 which means had he not died in 1949, he would have been 132 years old today.  To put this in perspective, if Ponzi schemer, Bernie Madoff started serving his prison sentence 132 years ago, he would still have 18 years left on his sentence of 150 years.  Ponzi was a good example to generations of scammers including, in recent years, Bernie Madoff, R. Allen Stanford, Tom Petters, Scott Rothstein and Marc Drier, to name just a few.  Unfortunately although scam artists, the only criminals we refer to as artists have learned from Charles Ponzi, many of us in the public have not paid enough attention to the lessons of Charles Ponzi and we continue to be cheated and scammed by people following Ponzi’s plan.  At its core, Ponzi’s plan involves a  seemingly complex investment that returns steady and lucrative returns.  Generally the investments are touted as being both safe and high paying.  Unfortunately, the only one who is getting highly paid is the criminal masterminds behind these scams.  Generally there are no investments, as was the situation with Madoff.  The records provided to investors are phony and the money paid back to investors is derived from the funds constantly being added to the scheme by new investors.

TIPS

Bernie Madoff had the temerity to blame his own victims for their losses when he recently said that investors should have investigated his investment strategy before investing with him and that had they done so, they would have been able to see that it was a scam.  The truth is, however, that no one should ever invest in any type of investment that they do not fully understand.  Madoff’s professed theory at the time he was raking in funds appeared so complex that many intelligent investors ignored the fact that they did not understand what was going on and instead merely looked at his consistent rates of return and just blindly trusted him.  This was a big mistake.  Investors with R. Allen Stanford may have been blinded by their greed when they invested in his off-shore CDs that somehow were able to return interest rates 4% higher than CDs from American banks.  Neglecting to do proper research into these investments cost Stanford’s victims dearly.  You can learn more details about how to recognize Ponzi schemes and what steps you can take to protect yourself from investment scams in my book “The Truth About Avoiding Scams” which can be obtained through Amazon by clicking on the link on the right hand side of this page, however two essential rules are that you should never invest in any investment that you do not truly understand and you should always be skeptical when an investment appears too good to be true.

Scam of the day – December 11, 2013 – William Dean Chapman scams congressman and others

William Dean Chapman, the founder and owner of Alexander Capital Markets has just been sentenced to twelve years in prison for an investment scam that stole 36 million dollars from 122 investors including Florida Congressman Alan Grayson.  According to the SEC, Chapman and his company “raised money by inducing borrowers to transfer ownership of millions of shares of publicly traded securities to them as collateral for purported non-recourse loans based on false promises, including the promise to return the shares, or remit share profits in excess of accrued interest, to borrowers who repaid their loans.”  Generally what Chapman and his company would do is loan money to the victims in an amount of between 85% and 90% of the value of the stock that was transferred to Chapman with the understanding that after about three years, the stock would be returned to the customer if the loan was paid with interest.  Instead, Chapman sold the stocks upon receiving them and used the proceeds to provide the money loaned to the victim.  Chapman then kept the rest of the sales proceeds for his own use.  Thus there was nothing left to pay the customers back at the end of the three years.

TIPS

One of the first rules of investing in order to protect yourself from being scammed is to make sure that you never invest in something that you do not understand.  This particular type of a hedging transaction, if done properly is legal, but certainly complicated and should only have been considered by extremely sophisticated investors.  However, where sophisticated investors such as Congressman Grayson, who indeed has been proven to be a knowledgeable investor made a mistake is in providing the stocks to Chapman and his company where they were both the entity that made the loans and held the securities.  One way of avoiding this type of scam is to insist on a separate broker-dealer holding the stocks in order to provide a greater level of safety and avoid both the temptation and the ability to pull off this kind of scam.  If an independent broker-dealer had held the stocks, this type of scam would have been impossible to pull off by Chapman.

Scam of the day – November 7, 2012 – Disaster investment scams

Following in the wake of Hurricane Sandy and tonight’s projected Nor’Easter which is expected to hit many of the areas already devastated by Hurricane Sandy, there will be many scams as scam artists and identity thieves attempt to further victimize the victims of the storm.  I have already warned you about the scams involving phony contractors, phony FEMA representatives, phony insurance adjusters and phony charities, but with history as a guide, you should also be wary of the next round of scams which will take the form of scam investment opportunities.  As previously happened following Hurricane Katrina, you can expect to receive emails and other communications offering to let you in on fool-proof investments in companies that have developed products or are providing services that will be part of the massive clean-up and reconstruction of the storm affected areas.  These investments may be in a revolutionary new type of generator, a water-removal system or other storm related technologies or products.  Many of these investments will be scams and you should be very careful before making private investments.

TIPS

First you must ask yourself, why is this stranger contacting me to invest in this fool-proof investment that is guaranteed to deliver a huge profit?  You should also never underestimate the power of a fool.  Nothing is fool proof and no investment can guarantee a huge profit.    Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her.  You can also check with your own state’s securities regulation office for similar information.  Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.   You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular  investment adviser.  It is also important to remember that you should never  invest in something that you do not completely understand.  This was a mistake that many of Bernie Madoff’s victims made.  You also may want to check out the SEC’s investor education website at www.investor.gov.  Scammers can be very convincing and it may sound like there is a great opportunity for someone to make some money, but you must be careful that the person making money is not the scam artist taking yours.