RICHMOND — Recent stock market volatility,
low yields on certificates of deposit and other fixed income investments, and general
economic uncertainty have prompted many Virginians to look for safer and more profitable
places to put their money. Whether you are saving for retirement or your child’s
education, making wise investment decisions and avoiding investor traps are key
to protecting your financial nest egg.
The State Corporation Commission (SCC) warns that headlines regarding the economic
downtown may be used to lure unwary investors into surrendering their hard-earned
money. Ron Thomas, director of the SCC’s Division of Securities and Retail Franchising,
urges Virginians to beware of sales pitches that promise big returns with little
or no risk. “Following the latest or greatest get-rich-quick scheme without doing
their homework could leave investors holding an empty bag,” Thomas said. “Don’t
be a victim of unsuitable or fraudulent investment opportunities. Investigate before
you invest,” he said.
Some of the latest headline-related investor complaints state securities regulators
are receiving involve investment pitches touting gold and other precious metals,
wave energy, synthetic fuels, and distressed real estate. Thomas urges investors
to be particularly wary of the following:
- Gold and Precious Metals. Higher precious metal prices
and the promise of an ever- appreciating, “tangible” asset have lured unsuspecting
investors into a variety of scams. There are no guarantees with gold or precious
metals, even in legitimate markets. In the spring of 2011, silver’s value declined
by 30 percent in a single three-week period.
- Distressed Real Estate Schemes. Investment offerings
involving distressed real estate have been on the rise following the collapse of
the real estate bubble. While many legitimate investment offerings are tied to real
estate, investment pools targeting distressed real estate have become increasingly
popular with con artists as well as investors. Investments in properties that are
bank-owned, in foreclosure, pending short sales or otherwise in distress are risky
and should be evaluated carefully. Like other securities, interests in real estate
ventures must be registered with state securities regulators.
- Energy Investments. These may involve oil and gas investments
or development of new energy-related technologies. They often rely on high-pressure
marketing tactics and promise quick profits. Even legitimate offerings in these
ventures may carry a high degree of risk.
- Promissory Notes. These short-term debt instruments
are often offered by little-known or nonexistent companies and promise high returns
with little or no risk. They give investors a false sense of security by promising
fixed interest rates and safety of principal. However, even legitimate notes carry
some risk that the issuers may not be able to meet their obligations. Most promissory
notes and the persons who sell them must be registered with state securities regulators.
- Affinity Fraud. Marketing a fraudulent investment scheme
to members of an identifiable group or organization continues to be a lucrative
practice for Ponzi scheme operators and other fraudsters. The most commonly exploited
are the elderly or retired, religious groups, and ethnic groups. Investment decisions
should always be made based on careful evaluation of the underlying merits rather
than common affiliations with the promoter.
- Unlicensed Advisors. Anyone selling securities or providing
investment advice about buying or selling securities such as stocks, bonds, or mutual
funds, must be appropriately licensed. One should investigate anyone providing investment
advice or offering to help you buy or sell securities.
- Bogus or Exaggerated Credentials. State securities
regulators have led the effort to prevent the misuse of credentials or designations
intended to imply special expertise or training in advising senior citizens on financial
matters. Now, state regulators are noticing an increase in the use of other bogus
credentials or exaggerated designations. Investors should press for full disclosure
and the meaning behind all designations, and should check with their state regulator
if they have any suspicions about claimed credentials.
Thomas expects similar investment traps to persist for the foreseeable future. Many
involve complex financial products that typically are unsuitable for the average
Thomas urges investors to carefully research any investment opportunity and the
person and company offering it. “Steer clear of investing landmines by making sure
you understand the investment product being offered. Obtain written information
that fully explains the investment before you hand over your money. Weigh risk versus
reward and make sure any offering meets your personal investment goals,” Thomas
said. “Contact the SCC’s Securities Division before you invest to find out if both
the salesperson and the investment are registered in Virginia. If you don’t, chances
are your hard-earned money cannot be recovered,” he said.
For more information, call the Securities Division in Richmond at (804) 371-9051
or toll-free (in Virginia) at 1-800-552-7945. You may also visit the division’s
website at www.scc.virginia.gov/srf or visit the North American Securities Administrators
Association’s website at www.nasaa.org.