Maine’s securities administrator has some advice for would-be investors: steer clear of any offer promising “limited or no risk” and big returns.
Judith Shaw sent out a news release as the old year was drawing to a close, reminding consumers that education was their best defense. Shaw said red flag warnings should go up any time there’s an unsolicited offer of financial advice or investment possibilities.
Shaw also serves as president of the North American Securities Administrators Association. A survey of other members turned up five troubling themes.
Leading the list were unlicensed salespeople and unregistered products. Licensing requirements are in place to protect investors; crooks try to get around them by offering those quick returns at minimal risk.
A second danger zone involves promissory notes. These are usually offered by companies looking to raise capital; they’re best purchased by experienced or corporate investors who can thoroughly check out the company that’s making the offer. Inexperienced investors would do well to stay away from short-term notes, which may be offered to bypass rules stating that they be registered with the U.S. Securities and Exchange Commission and state regulators.
Oil and gas investments can be tricky. The deal might originate in one state with drilling in another; this can make visiting either a challenge. The Securities Administrators Association cautions that bogus offers are making the rounds as oil prices continue to fluctuate.
A fourth area that’s not for novice investors is real estate deals. Nontraded real estate investment trusts, brokered mortgage notes and re-sales of timeshares often carry high risk.
The fifth area — probably the worst — is the Ponzi scheme. Using the money from new investors to pay off old ones is always doomed to fail. And it’s never legal.
CNBC’s website has a longer list of sometimes shaky investment offers. Trading currencies sounds exotic but the complexities can spell trouble. Precious metals are touted by advertisers, but scammers know that buyers likely won’t visit the companies that supposedly store the gold bullion.
Sellers of “private placements,” or securities that are exempt from federal or state regulations, tout high returns but they may be telling tall tales. The Internet is loaded with offers for private placements; some are legitimate, while others are scams.
Speaking of the Internet, the SEC reminds consumers that financial advice of all kinds abounds in cyberspace. Read the commission’s advice about online investment newsletters at sec.gov/investor/pubs/cyberfraud.htm. And check out financial investors who are licensed to do business in Maine at maine.gov/pfr.
Finally, remember the old saw: If it sounds too good to be true, it is. That applies to offers from people you know as well as those you don’t; people who appear to be your friend may simply be after your money.
Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer, ME 04412, visit http://necontact.wordpress.com or email firstname.lastname@example.org.