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Personal and Business Banking

Scams and Risky Ventures to Avoid

StreetWise Consumer Education Program

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Retirement savings and investments are an enticing target for scam artists. The pickings are all too easy, as millions of victims have discovered. Late starters may be eager to boost their nest egg. Retirees who must roll their 401(k)s, IRAs or other retirement savings plans into new investments are often looking for investments that are low-risk but high-yield. With such goals, it's all too easy to fall victim to the scam artists' golden promises. Here are some of the most common rip-offs that target retirement investments.

Internet Fraud

There is a lot of investment advice, both good and bad, on the Internet. Investment scams can be found in e-newsletters, bulletin boards and newsgroups, websites and spam. The following tips, from the National Consumer's League Internet Fraud Watch, will help you avoid losing your hard earned dollars to fraud:

  • There's no such thing as a no-risk investment.

    Since all investments have a risk, make sure you know what that risk is and that it is acceptable to you before you invest.

  • Be wary of promises that you'll make big bucks quickly.

    There isn't any way to accurately predict how an investment will perform. You could just as easily lose big bucks as make them.

  • Get the details in writing. Legitimate companies will provide you all the information you want.
  • Don't touch any offers whose promoters pressure you to act immediately.

    This is a fraud danger signal.

  • Do your homework before you invest.
  • Don't act on tips or testimonials from strangers.

    They could be con artists running an investment scam.

  • Avoid "offshore investments."

    These are often touted as ways to avoid taxes. The truth is you are still liable for taxes and these investments are usually very risky.

  • Be wary of unsolicited emails

    Be wary of unsolicited emails about investments from firms or people you are not familiar with or do not already have a relationship with. Do not open or respond to them.

  • Always research investment offers.

    Check out the company you're investing in and the company or broker touting the investment with the U.S. Securities and Exchange Commission (SEC) and your state securities regulator.

See Be Alert for Telltale Signs of Online Investment Fraud from the SEC for more tips.

Affinity Scams

Affinity investment fraud targets the members of a specific group, such as religious or ethnic groups, work or social groups. The fraudster is often a member of the group or dupes leaders in the group into promoting the scheme. Victims trust friendship rather than check the proposed "investments" out thoroughly. Most affinity scams feature some sort of pyramid or "Ponzi" scam that uses money from recent victims to pay partial "dividends" to earlier "investors," stringing them along too.

The Internet Fraud tips above are applicable to any type of investment — online or off. Always check out an investment offer no matter who is touting them.

Promissory Note Fraud

Promissory notes are one legitimate way that companies raise money. A promissory note is a loan of money from an investor to a company for a set period of time. In return, the company promises to pay the investor a fixed return on the amount loaned. The catch is that "promissory notes" marketed widely to individuals are usually fraudulent. The promoter is typically an independent life insurance agent to whom the fraudster has promised large commissions.

Here are some tips to help you avoid promissory note fraud:

  • Legitimate corporate promissory notes aren't usually sold to the general public.
  • Determine if the investment is registered with the SEC or your state securities regulator, or if it's exempt from registration.
  • Be wary if the seller tells you the promissory note is not a security.
  • Verify that the seller is properly licensed.

    Insurance agents can't sell securities, including promissory notes, without a securities license.

  • Remember that there's no such thing as a risk free investment.

Broken Promises: Promissory Note Fraud from the SEC provides more information about properly and thoroughly checking out any promissory note you may be considering.

"IRA approved" scams

Some hucksters try to sell their pie-in-the-sky but fraudulent investment scams as "IRA-approved," "IRA-sanctioned" or "IRS-approved" — there's no such thing. The IRS doesn't review or approve investments nor does it endorse any investments. The IRS also doesn't issue any statements that an investment in an IRA is protected because a particular custodian or trustee has been approved by the IRS.

In the past, most of these scams were promoted through high-pressure telemarketing calls. Newer schemes have been promoted through television "infomercials" and radio ads. Don't buy an investment based only on the "infomercial." Always check out an investment before purchasing.

A word about "lottery" and "sweepstakes" scams

Strictly speaking, these are not "investment" scams, but the scam artists often specifically target seniors and their retirement savings. These scammers may contact you by phone, mail, or email and indicate that you have won a large sum of money (possibly hundreds of thousands) in a foreign sweepstakes such as the Canadian or Australian lottery. Here are the two main ploys the scam uses to steal your money:

  • The "lottery representative" (scam operator) says that you must send money to "pay taxes on the winnings."

    If you pay once, they will come back and ask for more "taxes."

  • You are asked to provide your account information so that they can deposit the winnings in your account.

    Instead, the scam operator will steal your money from your account.

To protect yourself, never respond to foreign lottery solicitations and notifications. If you respond to one, even an email to ask for more information, you'll get on the databases that scammers share and you will receive many more "offers" for lottery and other "investment" opportunities.