Investors beware: State Securities Division issues warning list of top 10 scams

We've all heard the saying, "If it sounds to good to be true, then is usually is." Even so, investment scams are plentiful in Utah, and the Utah Division of Securities wants people to be on guard.

The state today released its list of the top 10 investment scams to look out for in 2008. The fraudulent schemes include real estate notes where the real estate is never delivered, investments in "secret" Homeland Security projects and fraudulent seminars that are billed as "educational."

"Fraud happens because there are people always hopeful they can get some better return on their investment," said Wayne Klein, director of the state Division of Securities. "And there's no shortage of crooks willing to tell them lies in order to get their money."

In 2007, the state division filed enforcement actions in 63 cases. In these securities-fraud cases, 727 investors lost over $77 million, Klein said.

According to the division, the most likely victims of investment fraud are not elderly widows, but are married men with above-average intelligence who also are financially literate and who think they are smart enough to distinguish a fraudulent offering from a legitimate one. Con artists know this and have become skilled at appearing legitimate, the division said.

Often, the con artists play to people's sense of trust. Sometimes, the "trust me" phrase is stated explicitly, and in other instances, it is implied because the promoter and investor both belong to the same church, workplace, community group or neighborhood.

Klein said many criminals try to use Utahns' religious ties to their advantage.

"The beauty of making the victims of your fraud members of your congregation is that after they lose their money, they are suppose to forgive you," Klein said.

At the top of the state's warning list for 2008 are real estate notes. The No. 1 investment fraud in 2007 was selling promissory notes having a real estate theme, the division said. Investors are told they can earn enormous profits from real estate and are led to believe their investments are secured by real estate, but the investors later find out that they never have been listed as a lien holder of any real estate.

In cases this past year, promoters took money from Utah residents after promising to buy raw land that would be developed into subdivisions, use investors' credit scores to buy homes, develop resort properties in Mexico and make "hard-money" high-interest loans to real estate builders. The investors in many instances were persuaded to obtain second mortgages on their homes to obtain more money to invest.