WISE MONEY: Scammers try to lure you with greedy fairy tales

Q:
I have friends and family who have unfortunately been taken by
investment scams. Are there popular ones currently that you can warn us
about?

A: As long as there are
invest­ments, there will be investment scams. Scammers cheat people by
preying on their greed and misconception that there’s an easy route to
investing success. Of course there isn’t. In an effort to help
people keep from getting ripped off, the North American Securities
Administrators Asso­ciation recently posted its top 10 current
investment scams on its website, www.nasaa.org.

Some of the most common scams these days involve gold.

You might get a letter or an email from someone claiming to have access
to a highly produc­tive gold mine. All they need is money to buy
extraction equip­ment, and when they get the gold you get your money
back plus a share of the gold. Of course, the victims never hear from
the per­son after they send checks.

This scam feeds on the belief

that you must take possession of gold to invest in it. This isn’t true.

Also, gold is a poor enough in­vestment without scamming be­cause it has little intrinsic value.

Even if you believe the world is coming to an end, what good is gold?
You can’t eat or drink it or use it to protect you, and it certainly
won’t keep you warm in a cave. Gold’s value goes up and down solely
from trading. It follows the “greater fool theory” — one fool buys in
anticipation that another fool will pay even more. Many of those buying
gold at today’s high prices will be left in the lurch when the price
eventually plummets, as it’s done so many times in the past.

A
similar scam seeks money for untapped oil and gas reserves. If only
they had the money for extraction, the “salesmen” tell their marks, “we
could all get rich together.”

In another common scam these
days, so-called financial sales­men seek capital from investors by
lying about or exaggerating their credentials. These include
bogus law degrees or “senior” financial designations. These
designations are often granted after one-day sales seminars and are
used to give these people per­ceived expertise and legitimacy in the
senior citizen community.

Yet in some cases, these des­ignations might only mean that they’ve paid an organization to
use its trademark. Some of these recipients then unfortunately use the
designation as a tool to prey on seniors. To avoid getting roped into
this, insist that sales­men provide their credentials in writing, and
check on them with state regulators.

Also, unsuspecting investors are being victimized by mem­bers of groups they belong to.

These scam artists exploit the trust people have in others like
themselves. This is referred to as affinity fraud, and often takes
place in churches and nonprofit organizations.

In a nation
where real es­tate values have plummeted, distressed real estate
schemes abound. Such scams claim to put together pools of foreclosed
prop­erties purchased from banks to prepare them for resale at a
profit. Many of these operators are anything but legitimate. Again,
al­ways check with state regulators.

Among other current scams: • Unscrupulous stockbrokers.

When share prices tumble, some brokers cut corners or defraud their clients with bogus fees or unauthorized trades.

• Unlicensed people. These con artists claim to be licensed to sell
insurance, but the only li­cense they have is to drive. They claim high
returns with no risk, something that only happens in fairy tales.

• Promissory notes. These are high-yield, short-term debt con­tracts sold by insurance agents.

The problem is that some of the companies that issue them don’t exist.
Again, peddlers appeal to greed, promising high returns with little
risk.

When approached by invest­ment salesmen, remember that if
it sounds too good to be true, there’s a reason. Don’t allow greed to
make you a victim.

The
opinions expressed in this column are solely the writer’s and do not
reflect the opinions of The Patriot-News. Before acting on financial
advice, readers should consider whether it is suitable for their
circumstances and consider seeking advice from a financial or
investment adviser.