Emerging and Persistent Investor Threats Named

The list of potentially dangerous financial products and practices was updated last month by the North American Securities Administrators Association (NASAA). This year’s list includes practices designed to exploit new and existing federal laws.

New threats on the top-10 list are:

  • Crowd funding and Internet offers: Small startups are among the risky investment categories, and the JOBS Act is likely to elongate a recent trend of more investigations and enforcement actions involving Internet fraud.
  • Inappropriate advice or practices from investment advisers: The Dodd-Frank Act transferred primary supervision of thousands of mid-sized advisers to state regulators, from the Securities and Exchange Commission. This will result in new audits and the discovery of more problems.
  • Scam artists using self-directed IRAs to mask fraud: Fraud promoters often deceive investors by claiming a self-directed IRA custodian has analyzed or validated an investment, when in fact they have not.
  • EB-5 investment-for-visa schemes: The EB-5 program grants visas to foreign nationals who invest $500,000 into a new commercial venture. Promoters often mislead investors into believing these ventures are safe, when they are actually very risky.
  • Persistent threats on the top-10 list are:
  • Gold and precious metals: An unsolicited email or phone call suggests the promoter will hold the gold or silver in safekeeping for the investor, when in fact the metal doesn’t even exist.
  • Risky oil and gas drilling programs: Investments in oil and gas drilling programs are typically very risky, but promoters will use high-pressure sales tactics to conceal these risks.
  • Promissory notes: Often the favored investment vehicle for Ponzi schemes, they are highly speculative and come with overstated promises of return and security.
  • Real estate investment schemes: Schemes related to the buying, renovating, flipping or pooling of distressed properties are popular with con artists.
  • Regulation D Rule 506 private offerings: These are the most common products that lead to investigations. They are highly illiquid, generally lack transparency and have little regulatory oversight.
  • Unlicensed salesman giving liquidation recommendations: Insurance agents who lack the proper securities license advise investors to sell securities to fund the purchase of annuities. This is a common complaint.

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