The North American Securities Administrators Association (NASAA) named four investing strategies as emerging threats: binary options, marijuana industry investments, stream of income investments and digital currency and cybersecurity risks. These four join private offerings, pyramid and other Ponzi schemes, real estate schemes (including those using promissory notes), affinity fraud, Internet fraud (including social media and crowdfunding) and fracking-related investments as the top fraudulent threats.
The organization further cautioned against unregistered individuals promoting investment opportunities. These individuals “continue to be the most common subject of enforcement actions by state securities regulators.” We suggest conducting a background check on any financial adviser on FINRA’s BrokerCheck (brokercheck.finra.org), the Investment Advisor Registration Depository (www.investor.gov), your state’s securities commissioner’s office and a Google search on the person’s name.
Binary options pay out a fixed sum at expiration if the underlying asset rises (or falls) in value. Unlike a traditional option, the payout from a binary option does not change, no matter how much the underlying asset’s price moves. The NASAA says binary options are fraudulently promoted, are used for identify theft and may not pay out as promised.
Marijuana industry investments have caught the eye of hucksters looking to the advantage of the drug’s legalization. Promoters are pitching companies providing products and services to the marijuana industry such as vaporizers, hydroponic supplies, lighting systems and security systems. The stocks of many of these companies are used for “pump and dump” scams where fraudsters buy shares, promote the stock and then sell their shares as prices jump, leaving investors holding practically worthless shares.
Stream of income investments offer exposure to pension payments, government disability programs, life insurance policies and other streams of income. Among the significant risks are laws prohibiting the assignment of the stream of income or benefits and cancellation of life insurance policies. The buyer of a stream income investment often has no legal recourse.
Regarding digital currencies, the NASAA warns that “unscrupulous promoters may attempt to capitalize on the popularity of digital currencies by illegally offering securities tied to digital currencies.” The organization further points out threats of hackers compromising network security systems and diminishing the value of digital currencies.
Source: “New Products in Classic Schemes Identified as Top Investor Threats,” NASAA, November 12, 2014.
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Vaidy Bala from AB posted over 11 years ago:
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