Scams and Risky Ventures to Avoid

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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 IRAs or other retirement savings plans into new investments are often looking for investments that are low-risk but high-yield. With such wishes, it’s all too easy to fall victim to the scam artists’ golden promises. Here are some handy general resources and then some articles on several of the most common rip-offs that target retirement investments.

Guide to Identifying and Avoiding Securities Fraud: Online Publications at the SEC from the Securities and Exchange Commission and Investor Alerts and Tips from the North American Securities Administrators Association offer brief articles that show investors how to recognize and avoid a variety of investment frauds.

Ask Questions from the SEC describes questions you should ask about your investments and what you should do if you run into problems.

Protect Your Money: Check Out Brokers and Investment Advisors from the SEC describes how you can determine the validity of your broker’s credentials, whether your broker has had any problems, and more.

SEC Center for Complaints and Enforcement Tips provides a way for you to file a complaint or provide the SEC with tips on potential securities law violations.

Internet Fraud

Internet Fraud: How to Avoid Internet Investment Scams from the Securities and Exchange Commission outlines frauds related to e-newsletters, bulletin boards/newsgroups, and spam and how to avoid them.

Investing Wisely Online from OnGuard Online has tips for how to use the Internet to invest wisely and avoiding investment scams online.

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.

Affinity Fraud: How to Avoid Investment Scams that Target Groups, an Investor Alert from the Securities and Exchange Commission, provides tips on how to recognize and avoid such schemes.

Bilking the faithful in the name of fraud from MSN Money is a cautionary tale of affinity fraud. Individuals seeking to roll their IRA funds into an investment that would produce a fixed income; what they thought was a faith-based venture funding faith-based projects was really a Ponzi scheme.

Promissory Note Fraud

Promissory notes are one legitimate way that companies raise money. 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.

Broken Promises: Promissory Note Fraud from the Securities and Exchange Commission details the fraud and how to properly and thoroughly check out any promissory note you may be considering.

Avoid scams by friendly insurance agents by Liz Pulliam Weston on MSN Money details promissory note scams, fraudulent investment scams, and affinity scams involving insurance agents.

“IRA approved” scams

Some hucksters try to sell their pie-in-the-sky but fraudulent investment scams as “IRA-approved”—there’s no such thing. Get the low down on the scam with Bogus “IRA Approved” Investment Schemes from the North American Securities Administrators Association.

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 an ask for more "taxes."
• You are asked 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.

Prepared for Corning Credit Union by Remar Sutton & Associates, May 2005. Reviewed and updated May 2007. All rights reserved.

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