10 bogus investment schemes to beware of

  • Michelle Singletary / The Washington Post
  • Wednesday, May 16, 2007 9:00pm
  • Business

If you like keeping lists, there’s one you need to clip and post to your refrigerator door.

It’s the top 10 ways investors get involved in bogus or inappropriate investments. The list is compiled by the North American Securities Administrators Association. Some of the scams are old school.

They’ve been around a long time, and yet they continue to trap investors.

My favorite – and I use that word sarcastically – is the “prime bank scheme.” In this con, promoters get people to think that there are high-return, low-risk financial instruments sold by elite overseas banks.

These so-called prime banks do not exist. Using complex terms and promising that their funds are guaranteed, promoters collect money that’s often used to pay for cars, vacations, homes and risky investments that the investors have no idea about.

“No one is immune to these schemes,” said Bob Webster, the spokesman for NASAA. “We put out this list every year to try to keep one step ahead of the con artists. We want people to remain vigilant.”

And the scams don’t just involve phony investment opportunities, according to NASAA, which represents state and provincial securities regulators in the United States, Canada and Mexico. Increasingly investors are being trapped into putting their money into legitimate investment products that are unsuitable for them. Securities professionals are supposed to take into account a person’s age, financial situation and investment objectives when recommending financial products. That doesn’t always happen.

For instance, regulators have issued warnings about the sale of variable annuities, which are tax-deferred investment products that are wrapped with insurance. While variable annuities are appropriate for some, they are not appropriate for everyone, especially senior citizens. These long-term products often levy surrender charges for early withdrawals, typically within six to eight years after your purchase.

New to the NASAA list this year are real estate investment schemes.

This type of fraud is following the news, Webster said. Fraudulent promoters are playing on the popularity of real estate investing and the belief by novice investors that this type of investment is always a sure thing. Some investors have paid the price.

Recently, regulators in Missouri issued a warning to investors after seeing an increase in complaints from individuals about bogus real estate investments. In one case, an unregistered individual allegedly fooled a Missouri resident into investing more than $250,000 in nonexistent commercial real estate. In another case, a couple is accused of selling the same 50 percent ownership stake in a property to six different investors.

Right along with real estate scams are schemes involving oil and gas.

As oil and natural gas prices rise, so does the creativity of those selling investments in alternative energy companies. Most of these investments are highly risky and not appropriate for smaller investors, according to NASAA.

Most recently, the Oregon Department of Consumer and Business Services revoked the securities license of a stockbroker for advising more than a dozen of his clients – many of them in their 70s and 80s – to become general partners in risky oil and gas ventures.

Regulators are also seeing an increased push to get individual investors involved in foreign currency or “forex” trading. I’ve been hearing lots of commercials touting it on the radio. Forex contracts involve the right to buy or sell a certain amount of a foreign currency at a fixed price in U.S. dollars. There is a great amount of volatility and risk in the price of foreign currency. You gain or lose money as the exchange rate of the foreign currency fluctuates. While this type of investment may be appropriate for governments or large institutional investors, it is highly risky and perhaps too complex for the average investor.

The Commodity Futures Trading Commission and NASAA issued a warning this month about this type of trading and the potential for fraud.

In a typical con, an investor may be persuaded that with just a $5,000 initial outlay, he or she can make tens of thousands of dollars in a few weeks or months. But the $5,000 is never invested in the foreign currency through a legitimate dealer.

If you think you are a victim of this type of fraud, call the CFTC toll free at 866-366-2382. You can also go to the commission’s Web site at www.cftc.gov.

If you are unsure about a particular investment pitch, contact the Washington State Department of Financial Institutions at 877-746-4334 or www.dfi.wa.gov.

The federal Securities and Exchange Commission also offers tips for checking out brokers and investment advisers on its Web site at www.sec.gov/investor/ brokers.htm.

Year after year as these top 10 lists show, the scams get more creative and harder to spot. This is just a reminder to investigate before you invest.

Washington Post Writers Group

Investment scams

Heres a list of the top 10 investment scams from the state Department of Financial Institutions:

  • Ponzi schemes: Pay early investors with money from later ones.
  • Unlicensed securities sellers.
  • Unregistered investment products.
  • Promissory notes.
  • Senior investment fraud.
  • High yield schemes.
  • Internet fraud.
  • Affinity fraud: Con artists target religious, ethnic or cultural groups.
  • Reload scams: Promises to help victims recover.
  • Oil and gas scams.
    Talk to us

    > Give us your news tips.

    > Send us a letter to the editor.

    > More Herald contact information.

  • More in Business

    Lily Lamoureux stacks Weebly Funko toys in preparation for Funko Friday at Funko Field in Everett on July 12, 2019.  Kevin Clark / The Herald)
    Everett-based Funko ousts its CEO after 14 months

    The company, known for its toy figures based on pop culture, named Michael Lunsford as its interim CEO.

    The livery on a Boeing plane. (Christopher Pike / Bloomberg)
    Former Lockheed Martin CFO joins Boeing as top financial officer

    Boeing’s Chief Financial Officer is being replaced by a former CFO at… Continue reading

    Izaac Escalante-Alvarez unpacks a new milling machine at the new Boeing machinists union’s apprentice training center on Friday, June 6, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
    Boeing Machinists union training center opens in Everett

    The new center aims to give workers an inside track at Boeing jobs.

    Some SnoCo stores see shortages after cyberattack on grocery supplier

    Some stores, such as Whole Foods and US Foods CHEF’STORE, informed customers that some items may be temporarily unavailable.

    People take photos and videos as the first Frontier Arlines flight arrives at Paine Field Airport under a water cannon salute on Monday, June 2, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
    Water cannons salute Frontier on its first day at Paine Field

    Frontier Airlines joins Alaska Airlines in offering service Snohomish County passengers.

    Amit B. Singh, president of Edmonds Community College. 201008
    Edmonds College and schools continue diversity programs

    Educational diversity programs are alive and well in Snohomish County.

    A standard jet fuel, left, burns with extensive smoke output while a 50 percent SAF drop-in jet fuel, right, puts off less smoke during a demonstration of the difference in fuel emissions on Tuesday, March 28, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
    Sustainable aviation fuel center gets funding boost

    A planned research and development center focused on sustainable aviation… Continue reading

    Helion's 6th fusion prototype, Trenta, on display on Tuesday, July 9, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
    Helion celebrates smoother path to fusion energy site approval

    Helion CEO applauds legislation signed by Gov. Bob Ferguson expected to streamline site selection process.

    Britney Barber, owner of Everett Improv. Barber performs a shows based on cuttings from The Everett Herald. Photographed in Everett, Washington on May 16, 2022. (Kevin Clark / The Herald)
    August 9 will be the last comedy show at Everett Improv

    Everett improv club closing after six years in business.

    Pharmacist John Sontra and other employees work on calling customers to get their prescriptions transferred to other stores from the Bartell Drugs Pharmacy on Hoyt Avenue on Wednesday, July 2, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
    Bartell Drugs location shutters doors in Everett

    John Sontra, a pharmacist at the Hoyt Avenue address for 46 years, said Monday’s closure was emotional.

    Support local journalism

    If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.