We’ve all heard about them. The Securities and Exchange Commission (SEC) regularly publishes warnings about them. Hollywood makes movies about them. Yet FBI statistics have shown investment scams, particularly in the area of securities fraud, are increasing year after year.
There’s a certain type of investor who’s always looking for that one sweet deal that will offer spectacular returns with lightning turnarounds. Because, you know, life’s like that.
The fact these deals may be too good to be true doesn’t appear to be an obstacle for such investors – they’re too eager to write a check. After all, a four hundred percent return on their money might just be a month down the road.
Investment scams can surface in a variety of forms. A telephone sales representative might call and tell you he got your name from a special list. He might then tell you he has an exclusive “private placement” offer to discuss with you. The convenient aspect of a private placement offer is that the shares are available only to a limited number of investors, and do not have to be registered with the SEC. Even so, if the deal’s legitimate it will be covered under Regulation D of the Securities Act of 1933. But a slick-talking phone sales representative will discourage you from investigating whether the “deal” he’s hawking is covered; time is of the essence, he’ll insist—available shares are “just about sold out.” He needs a decision immediately, while he’s on the phone.
Or instead of a private placement, the caller may be calling to offer you shares that are not yet registered with the SEC. In other words, you’ll be told they’re getting in on a special deal just before the company goes public in an initial public offering (IPO). Many companies (like Facebook, for instance) started as IPOs. But if the caller is a scam artist, he’ll insist his prospects need to act immediately because of the limited available shares on the stock he’s pushing.
You may think only naïve or undereducated people could possibly fall for these kinds of scams. But Eric Stein, who went to prison for running such an investment scam, told the Wall Street Journal just the opposite is true:
“They were people who had cash – had made money – and had worked very hard for it. They were doctors, they were dentists… A lot of car-dealership owners, some golf-course owners, some high-profile restaurateurs. A lot of business owners, mostly entrepreneurs.”
Rather than offer you five or ten or thirteen ways to tell how to spot an investment scam, let me offer you this one short piece of advice. Close your eyes and picture a boiler room with a bunch of con artists sitting side by side. Here’s how the SEC described such a setting in an opinion it submitted in one of its court documents in the prosecution of the infamous Bernie Madoff:
“The brokers sat ‘cheek by jowl’ in a room the size of a basketball court. All of their desks were lined up side by side in rows. The firm held mandatory sales meetings every morning at 8:30 a.m. at which time sales techniques were demonstrated and scripts for the firm’s ‘house stock’. . . were distributed. Brokers were expected to follow the scripts and only give customers the information they contained.”
Got that picture? Good! Now hold it in your thoughts, and think about it the next time and every time someone makes you an offer that sounds too good to be true.
Then invest in a tangible asset that isn’t the flavor of the day, or some overly-complicated investment product, but an asset that’s been securing wealth for centuries: physical gold. You can see it, hold it and know will be there for you in any market, under any circumstance.