Scam of the day – March 3, 2017 – Happy birthday Charles Ponzi

Had he not died in 1949, today would have been Charles Ponzi’s 135th birthday.  Scam artists around the world should probably honor the man who perfected the scheme that bears his name that has been used by many scam artists, the only criminals we refer to as artists to steal billions of dollars from unwitting victims who made the mistake of investing their money with him.  Although, Ponzi was not the first to use the technique of paying off early investors with the investments of later investors in an effort to make a total sham look as if it is a profitable business, that dishonor should go to William Miller who first used this scheme in 1899, it was Ponzi in 1920 who perfected the scam to steal millions of dollars from unwary investors in his scheme by which he told them that he was able to take advantage of fluctuating currency values to purchase international postal reply coupons at a discount and then sell them at face value in the United States.  Ponzi promised, and delivered to early investors, a 50% profit on investments within 45 days and a 100% profit within 90 days.  Of course, the entire scheme was a total sham, but eager investors blinded by their greed flocked to him to invest.  Eventually, as ultimately always happens in a Ponzi scheme, the scam was exposed and Ponzi went to prison.  However, the list of criminals still using this prototype of a scam continues to this day including such famous Ponzi scheme criminals as Allen Stanford, Tom Petters, Norman Hsu, Lou Pearlman and, of course, the biggest of them all, Bernie Madoff who swindled people out of more than 50 billion dollars using this time honored scheme.

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So how do you protect yourself from falling prey to a Ponzi schemer?  There are a number of things you can do including always investigate the credentials of any investment adviser you are considering using.  You can check on individual investment advisers with the SEC, your own state’s securities regulators and the Financial Industry Regulatory Authority (FINRA).  However, that would not have protected you from being swindled by the likes of Allen Stanford or Bernie Madoff.

Another important thing is to never use an investment adviser who is also the custodian of your funds. This is a recipe for disaster.  The role of an investment adviser or manager should be solely that of advising and making trades.  The custodian of the actual investments should be a separate broker-dealer regulated by the Financial Industry Regulatory Authority (FINRA) and backed by the Securities Investor Protection Corp. (SIPC).  Never invest in anything that you don’t totally understand and be particularly wary of investments that promise huge returns or no risk of ever losing money even when market conditions are poor.

Scam of the day – July 2, 2016 – Brexit scams

The economy in general and the stock market in particular react to fear and greed.  The recent Brexit (British Exit) vote of Britain to leave the European Union (EU) has led to a great deal of fear as reflected in the initial tremendous drops in the stock markets around the world.  It also is leading people to be vulnerable due to both fear and greed to the entreaties of scammers offering investments purporting to take advantage of the situation created by Britain leaving the EU.  Fear and greed are scammers best friends because they make people into easier targets.  Scammers are always ready to take advantage of every major event that happens and turn it into an opportunity to scam people and the Brexit vote is no exception.  Scammers are already contacting people with investment “opportunities” to take advantage of their concern about Britain leaving the EU.

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Before you consider any investment in response to an email, text message or phone call, you should first 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.

Too many people invest without doing their homework and end up losing money to scams.  Homework wasn’t fun when you were in school and it isn’t fun now, but it is important to do before investing in anything.

Scam of the day – June 12, 2016 – Zika virus vaccine company scams

Everyone would like to be able to invest in a stock while the price is still low, but can be expected to rise dramatically.  This desire for the quick hit is exploited by scam artists in a scam called the “pump and dump.”  In this scam, you may receive an email or a fax, often apparently intended for someone else informing you of a company with a low cost stock that is about to have its price rise tremendously.  Other times the stock may be talked up in Internet chat rooms.  Most often these companies are small capitalization companies, often referred to as penny stock companies.  These stocks are often thinly traded.  Following the advice, from someone they don’t know, the victim buys the stock and, sure enough, the stock value promptly rises, but then without warning, the stock plummets in value and you are left with a poor investment.  This scam is created by criminals who buy the stock themselves at a low value and then influence others to buy the stock regardless of the fact that the stock would not be expected to rise in value were it not for the fact that the scammers misrepresent the stock to their victims and lure them into buying it.  Once the stock has shot up in value, the criminals, knowing that the emperor has no clothes, sell their stock, make a profit and leave the victims with worthless stock certificates.

According to the Securities and Exchange Commission (SEC), scammers are taking advantage of the public’s increased awareness of the Zika virus to promote companies they say have products or services that can fight the Zika virus.  Generally, these are scams and you should avoid buying stock in these companies.

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Always consider the sources of any investment advice that you receive.  How reliable is the source?  What are their credentials?   What do they stand to gain?  Some particular red flags that the stock offer is a scam include unregistered investment advisers approaching you.  You can find out if a particular investment adviser is registered by going to the SEC’s Investment Adviser Public Disclosure database. Here is a link to that data base.  https://www.investor.gov/

Also, be wary of promises of huge profits with little or no risk.  That is a common thread with many scams.

Finally, be skeptical when you receive a stock solicitation by way of an email, text message, phone call or any other communication that you have not initiated.  Also, be particularly skeptical if the promoter of the stock tells you that he has inside information because trading on inside information is a criminal violation and as Martha Stewart would tell you, that is not a good thing.

Scam of the day – October 25, 2013 – Self-directed IRA scams

Self-directed IRAs are a legitimate retirement technique that permits people to invest their IRA money in real estate, precious metals, private placement securities and a number of other types of investments not generally found in typical IRAs which usually are limited to stocks, bonds, mutual funds and Certificates of Deposit.  In order to have a self-directed IRA, you need a custodian for the IRA just as you would with a more traditional IRA.  Unfortunately, scammers are using self-directed IRAs to foist phony investments upon unwary investors.  In addition, since most IRAs, as retirement accounts are generally left to grow and not accessed for years after being set up, the scammers have more time to avoid detection of their crime.

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You should investigate any investment you are considering before investing and your investigation should include looking into not only the legitimacy of the investment, but also the person who wants to sell it to you.  Be wary of unsolicited investment offers.  Check out the investment and the promoter of the investment with the SEC at www.sec.gov and with FINRA at www.finra.org.  FINRA is the biggest regulator of securities sellers in the country.

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.

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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.

Scam of the day – October 1, 2012 – Self-directed IRA scams

Self-directed IRAs may be a good retirement investment vehicle choice for people who are seeking alternatives to the traditional forms of investments for IRAs such as mutual funds, or CDs.  Among the investments you may choose for including in your self-directed IRA are rental real estate, precious metals, unregistered private securities or even bull semen.  One important element of a self-directed IRA is that you must have an independent, qualified third party act as the custodian for your investments and that’s where the potential for scams come in.  Although there are numerous legitimate, self-directed IRA custodians from which you can choose including the Vanguard group, there also are many scammers who prey upon people seeking self-directed IRAs by promising huge returns for using their services and investment counsel.  Some of these have put on free seminars in which they persuade people to invest with them, but take their money in a Ponzi deal and the investors never see their money again.

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There are a number of things you should do if you are considering a self-directed IRA.  As always, only invest in investments that you understand.  Unregistered securities can be a risky investment, particularly if you don’t truly understand the companies behind the investments.  Always check out the record of an investment advisor before you do business with him or her.  Go to the SEC’s website, your state securities administrator’s office and the website of FINRA, a private regulatory organization at www.finra.org to look up your particular advisor to see if there have been complaints or disciplinary action against him or her in the past.

Scam of the day – August 21, 2012 – New Ponzi scheme

Charges were recently brought by the Securities and Exchange Commission against former University of Georgia football head coach and member of the college football hall of fame, Jim Donnan in regard to operating an eighty million dollar Ponzi scheme by which he stole money from other college coaches and former players by luring them into a phony business that he promised would bring tremendous profits.  Instead, the funds of later investors were used initially to pay off earlier investors in order to make the investment look good while Donnan, according to the SEC took the lions share of the funds invested for his personal use.

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This is a good cautionary tale of two types of scams.  The first is obviously a Ponzi scheme scam.  Always beware of investments that promise unreasonably high returns and never invest in anything that you do not completely understand.  You also should always do your own due diligence to check out the investment and the people touting the investment before putting in any money.   The second type of scam is called affinity fraud which occurs when people let their guard down when the person proposing the investment is “someone like us.”  People trust people who are like themselves and do not do the proper due diligence.  Trust me, you can’t trust anyone.  When someone appeals to you for an investment and they are people you know or of the same ethnic group, religion, national origin or any other similar characteristic to yourself, that is the time that you must be the most careful.

Scam of the day – June 22, 2012 – Crowdfunding

The JOBS act recently enacted by Congress was done as a way to make it easier for entrepreneurs to raise money for new business ventures.  It reduces requirements for audited financial statements and other informational documents for companies going public with revenues less than a billion dollars.  This may well help entrepreneurs in developing new businesses, but it also is a great benefit to scammers because the law allows business developers to set up websites to seek out potential investors.  This is called crowd funding and the regulations required to set up such a website to seek investors are pretty slim.

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The SEC is still developing rules for crowd funding, but anyone considering investing in such a manner should be extra careful in getting as much information as possible to evaluate the legitimacy of the investment.  Just because it will have a recognized crowd funding portal does not mean that it is legitimate.

Scam of the day – April 27, 2012 – Pre-IPO scams

The Securities and Exchange Commission has just issued a warning to investors about scammers who are purporting to sell shares in companies such as Facebook and Twitter in advance of the Initial Public Offerings of the stock of these companies.  As with many scams, there is a small kernel of truth in that the law does provide for small legitimate offers of pre-IPO shares under very limited circumstances to accredited investors.  However the chance of your getting in on these Pre-IPO offerings for such companies are slim indeed.  In 2010 the SEC obtained a judgment against a scammer who stole millions from people by offering fake pre-IPO shares in companies such as Google and just a couple of weeks ago a similar scammer was enjoined by the SEC from perpetrating a similar scam involving Pre-IPO shares of Facebook.

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Certainly be skeptical of anyone contacting you with a proposal to sell you pre-IPO shares that you receive by a fax, email, text message or tweet.  Also check out the person trying to sell you the shares.  Go to the website of the Financial Industry Regulatory Authority where you can check on the background of any broker  You can also check with the SEC’s Investment Adviser Public Disclosure website and finally you can even check the Federal Bureau of Prisons Inmate Locator to learn if the person with whom you are dealing has every served time in prison.  A little skepticism and homework and save you from losing your money to a scammer.