Affinity schemes, complex leveraged investments and gold bullion scams are among the investor pitfalls highlighted by The North American Securities Administrators in their annual list of “10 Investor Traps” published today.
The Washington-based group, which represents State Securities Commissioners, highlights 5 products and 5 practices they say “deserve special scrutiny”. Especially, they note, in light of the fact that many investors are trying to rebuild savings sharply cut back during the stock market collapse of 2008 and may be looking for alternatives to low interest rates.
- Leveraged and Inverse Exchange-Traded Funds – While many “plain vanilla” ETFs work well, NASAA is concerned that others are not suitable for many retail investors. Leveraged ETFs can can contain exotic, complex investments and be quite volatile, they note.
- Currency Trading and Foreign Exchange Trading Schemes – State regulators have encountered schemes where promoters claim to have complex algorithms that allow them to beat the market, when really they are running a Ponzi scheme that never trades at all.
- Gold Bullion and Precious Metals Scams – With gold prices high, investors may be susceptible to claims that gold bullion is being held in a “secure vault” but often doesn’t exist. Investing pools of precious metal commodities and gold mines are other areas where investors have been snookered.
- Green Schemes – Not all “clean” technology investment offers are so squeeky clean themselves. Among the saddest: rip offs touting investments related to the clean-up of the Gulf of Mexico oil spill.
- Oil & Gas Schemes – A classic. Securities investments offering profit participation in oil and gas ventures can be legit, but check carefully into the structure of the deal — look for high sales commissions and what expenses will come out before revenue is paid out to investors. Also check out the promoter’s history with regulators. If they’ve had problems in the past they may have structured this deal without important investor protections, the group notes.
- Affinity Fraud – Don’t just buy into something because they claim a common affiliation. Research the investment with an independent, unbiased source.
- Undisclosed Conflicts of Interest – Always know how any salesperson or anyone giving investment advice is being paid.
- Private or Special Deals – Another category that can be on the up and up, but investors need to know that private deals don’t get the same regulatory scrutiny as public market investments do. So be careful.
- “Off the Books” Deals – Regulators are running into situations where riskier investments are being offered by brokers as side deals, not sold through his or her employer.
- Unsolicited Online Pitches – It’s not just email anymore. Twitter, Facebook, Craigslist and YouTube are being used to spread misinformation and offshore Ponzi schemes.