Check credentials before investing, theft victim warns
Financial experts say consumers should beware of affinity fraud, other threats
“With new advertising flooding the marketplace and currency vehicles such as Bitcoin making headlines, investors are facing new and confusing messages,” said Keith Woodwell, Securities Division director. “Choose your investments carefully, don’t jump into something you don’t fully understand, and work with a licensed professional when it comes to protecting your money.”
Woodwell said that while there are some new scams making the rounds, most of the fraud activity centers on schemes that have been around for years and continue to lure unwitting victims.
“Look at affinity fraud. It’s the best way going to recruit new people because it’s all based on trust,” he explained. “(People) are investing not because of the underlying merits of (the deal), but because they trust (the perpetrator). (You rely on trust) because you go to church with this guy or you’ve got history with them through your family, work or some other organization rather than the cold analysis of the facts of the (investment offer) and whether it makes economic sense.”
Woodwell also said fears of traditional investment channels have risen in the wake of the national economic downturn, prompting more consumers to consider alternative avenues to invest their money.
“With the government shutdown and fear that the U.S. was going to default on its bonds, people aren’t sure what they can trust anymore making it pretty hard for the ordinary investor to put their money in mutual funds on Wall Street (even though) that is the safe place to be,” Woodwell said.
The Utah Division of Securities has listed the following as the top investor threats to consumers:
Private offerings: Fraudulent private placement offerings, commonly, are referred to as Reg D/Rule 506 offerings, continue to rank as the most common product or scheme leading to investigations and enforcement actions by state securities regulators.
Real estate investment schemes: As housing prices continue to recover in many U.S. markets, investors should be aware that schemes related to new real estate development projects or buying, renovating, flipping or pooling distressed properties are popular with con artists.
High‐yield investment and Ponzi schemes: Retail investors chasing yield often find themselves falling prey to high‐yield investment and Ponzi schemes promising unbelievably high rates of returns.
Affinity fraud: Marketing a fraudulent investment scheme to members of an identifiable group or organization. The most commonly exploited are the elderly or retired, religious or ethnic groups and the deaf community.
Scam artists using self‐directed IRAs to mask fraud: Investors should be mindful of potential fraudulent schemes when considering a self‐directed IRA.
Risky oil and gas drilling programs: Oil and gas drilling programs, which typically involve a high degree of risk, are suitable only for investors who can bear the loss of their entire principal investment.
New scams targeting investors include:
Proxy trading accounts: Investors should be wary of individuals who claim to have trading expertise and offer to set up or manage a trading account on an investor’s behalf.
Digital currency: Consumers now are able to purchase goods and services with virtual money. Unlike traditional coinage, alternative virtual currencies such as Bitcoin and PP Coin typically are not backed by tangible assets, are not issued by a governmental authority and are subject to little or no regulation.
New threats to small businesses include:
Capital‐raising pitfalls: New and enhanced opportunities to raise capital through crowdfunding, public advertising for investors under JOBS Act regulations and angel funding “solutions” also carry risks for unwary entrepreneurs.
Unregulated third-party service providers: Whether a crowdfunding portal or an accredited investor aggregator, it is important to perform due diligence and to understand that use of an unregulated third party to provide such services does not change your obligations under federal and state securities laws.
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