Scammers, hoodwink artists and crooks helped securities regulators make a New Year’s resolution list for investors. It’s a list of rotten deals to avoid.
An alert naming the top five threats to investors going into 2016 came from the North American Securities Administrators Association. The association surveyed members, essentially the securities officials in Kansas, Missouri and other states.
1. Avoid investment deals that aren’t registered in your state and skip any offer from someone who hasn’t registered to do business with your state’s securities officials.
Investors also can check out their broker, called financial adviser by many firms, by going to BrokerCheck online. It is run by the Financial Industry Regulatory Authority, or Finra.
Information about investment advisers is available through the Securities and Exchange Commission’s Investment Adviser Search.
The key is to check out the deals and the dealers before investing. Also, beware of promises that a deal has limited or no risks and offers high returns, the alert said.
2. Promissory notes, which essentially are loans to companies with a promise of repayment. These can be legitimate investments, but they have been a fertile field for scams as low interest rates at banks has many savers looking for higher interest rates elsewhere. Be especially wary of notes that mature in nine months or less, the alert warned, as these sometimes can avoid the oversight of registration legally.
3. Oil and gas partnerships are another legitimate investment that can be twisted by crooks. Avoid deals in which the limited partnership is set up in one state, the operations and energy fields are in another state and neither is the state you live in. Far-flung setups make it harder for securities officials to detect fraud.
4. Real-estate-related investments. Securities regulators highlighted real estate investment trusts, or REITs, that don’t trade on an exchange as prone to fraud. Take care with time-share resales and brokered mortgage notes because of their potential for fraud, the alert said.
5. Ponzi schemes. They’re an old con, but the biggest one of all took in sophisticated investors who believed too much in Bernie Madoff. Scammers take in money from a few investors and pay them off by collecting more money from other investors.
“The only people certain to make money are the promoters who set the Ponzi in motion,” the alert said.