Understanding the various investment scams, how to spot them, protect yourself from them, and some of the most recent threats facing investors today.
Fraudsters are quite clever in trying to convince you to turn over your hard-earned money. Many of the “popular” type frauds they perpetrate are actually some of the oldest tricks in books, dressed up to look like modern-day investment opportunities. New technologies including the use of the internet have transformed how these scams are delivered, but they are still scams.
In its simplest form, a Ponzi scheme involves a promoter offering an investment opportunity promising a high rate of return. However, in reality, new investor money is used to pay those high rates of return to earlier investors. Earlier investors are happy because they appear to be receiving a significant return on their investment on paper. Unfortunately, those early investors may encourage their family and friends to invest as well. The scheme continues as long as new investors provide funds. When the scheme collapses, new investors lose their money, the early investors also lose out, and the promoter walks away with everyone’s money.
Fraudsters pretend to be a member of a group such as a religious organization, civic group, book club, community group, or other organizations where its members have a common tie. The con artist in this case is usually new to the group and quickly becomes a popular and trusted member who convinces a certain few (usually the most prominent, respected members) to invest in a "sound and lucrative investment opportunity". Over time, other members of the group learn about the investment, relying completely on the trust of others that it is a "good investment". Once the con artist believes he or she has convinced enough members to “invest”, they disappear with the member's money, never to be seen again.
Cold Calling and Boiler Room Scams
The name describes a fraudulent operation where promoters use heat and high pressure to convince people over the telephone to purchase risky, unknown, or even fake investments. The promoters are trained to use high-pressure tactics to convince you to invest and may even call multiple times to talk about other “sure win opportunities”. Quite often they will demand that you make an immediate decision to purchase the product. And the best way to handle these calls? Hang up!
Some scams are promoted through email and social media posts promising high returns for investing in companies that are largely unknown. They appear to be legitimate and professional looking offers. However, the goal is to convince people to purchase stock, “pumping up” the price of the stock, only for the fraudster to “dump” the stock so they can sell their shares at a higher price. Others will use the latest news and current events such as hurricanes or other catastrophic events to cloak their schemes with the air of immediacy and legitimacy. Just because it is on the internet does not mean it is true!
What information can the Bureau provide about a person trying to sell me a certain investment?
The Bureau has a registration database of all broker dealers, investment advisers and their agent representative licensed to conduct business in New Hampshire. Information regarding their employment history, securities licenses, customer complaints and other information is available. Keep in mind most perpetrators are unlicensed and try their best to operate under the radar.
Is the company or investment opportunity registered in New Hampshire?
In most cases, securities offered for sale in the state must be registered with the Bureau. Call the Bureau for information to confirm this information.
Is the investment safe?
The Bureau cannot weigh in on the safety of an investment or make any recommendations, but we do require that risks associated with investments are properly disclosed in offering documents. Also, that the person offering the investment is properly licensed.
I am the victim of an investment scam. What should I do?
Investor threats are constantly evolving
To learn more about other investment scams including the most recent top investor threats facing investors, check out the following information - courtesy of the N.H. Bureau of Securities’ member organization the North American Securities Administrator Association.