Investor Scams to Watch Out For

Investor scams are alive and well. There have been reports of more and more investment scams being perpetrated on would-be investors. Economic uncertainty and volatile markets are helping scam artists exploit the fear and greed of unsophisticated and financially vulnerable investors.

Of greatest concern are distressed real-estate schemes, energy investments, gold and precious metals, promissory notes and securitized life settlement contracts.

Five common scamming practices are affinity fraud, bogus credentials, mirror trading, private placements and investment advice offered by unlicensed agents.

In most cases, the fraudster is selling his or her alleged expertise in buying properties, trading commodities or assessing energy projects. In many pitches, guaranteed returns are offered with promissory notes if the project does not deliver as promised. Scam artists use recent news as their marketing pitch to support whatever they are selling.

A common strategy is what regulators call affinity fraud. Crooks solicit money from affinity groups like retirement communities or religious and ethnic groups. Word gets around, and interest grows in an opportunity to get in on the “ground floor” of a new technology or a “can’t-fail” energy drilling project or a “mirror trading” scheme that offers the chance to participate in the real-time trades of an alleged skilled trader. Emotions run high, time is of essence, and an “inside” opportunity is offered.

Bottom line:  If it sounds too good to be true, it is too good to be true.

Avoid snap decisions. Remember these four cornerstones of prudent investing:

  1. There are no safe havens.
  2. Market timing is hazardous.
  3. Concentrated investment portfolios are too risky.
  4. Emotions are more powerful that logic.

Check with a trusted advisor. Make a call to a federal or state securities regulator. Sleep on it. Do your research. And if it sounds too good to be true, stop!

For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.