Top Investment Scams

September 4, 2009
Michael Sheehan

Education and information are an investor's best weapons against securities fraud. Ponzi schemes, life settlements, and viaticals are favorites of con artists. Be aware.

According to the North American Securities Administrators Association, education and information are an investor’s best weapons against securities fraud. With many investors looking for ways to revive their hard-hit portfolios, scammers are getting more active. To help investors sort out the bogus schemes from the legitimate, NASAA has put together a list of the top investment traps used to part investors from their cash.

Among the top frauds are Ponzi schemes like Bernie Madoff’s billion-dollar scam. Ponzi schemes pay off the first wave of investors with money from those who get in later. Promises of steady, higher-than-market results are a signal that investors should be wary. Investors worried about inflation are frequently victims of gold bullion and currency trading scams, according to NASAA. Those who buy bullion from sellers who promise to buy it for them to store it securely may find that the bullion doesn’t exist. The association also warns that most individual investors don’t have the knowledge needed to put money into currency speculation.

Life settlements, or viaticals, are also a favorite of con artists. Viaticals are sales of life insurance policies designed to give those with shorter life expectancies needed cash for medical expenses. Buyers usually get the policy at a discount from face value and assume the premium payments in return for the death benefit. Promoters usually hawk high profits with little risk, but life expectancies are often low-balled and the investor loses out. Other scams to avoid, says NASAA, are pitches to invest in oil, gas, or alternative-energy projects like wind power and solar energy. Investments in new products or high-risk entertainment venues like movies are also likely to cost you money.