Avoid Financial Traps
Posted on July 31, 2013 by bob in Financial
Many Alabamians are seeking to rebuild nest eggs damaged by the recession or frustrated with low interest rates on savings. Senior citizens are particularly susceptible to speculative investments that can often turn a promise for profit into thin air. Knowledge, attention to detail and a healthy sense of skepticism are all weapons to fight investment fraud. Here’s a list of common investment traps:
— Oil & Gas Schemes. Fraudulent energy promoters continue to capitalize both on interest in the commodity and on oil and gas as investment alternatives to the stock market. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors who cannot afford the risk. Securities investments offering profit participation in oil and gas ventures can be legitimate, but even when the underlying project is genuine, any revenues realized can be absorbed by high sales commissions and dubious “expenses” skimmed off by the managing partner.
— Green Schemes. Investment opportunities tied to the development of new energy-efficient “green” technologies are increasingly popular with investors and scammers alike. Scammers also exploit headlines to cash in on unsuspecting investors, whether from investments related to the clean-up of the Gulf of Mexico oil spill or the rising national interest in environmental innovations tied to “clean” energy.
— Gold and Precious Metals. High gold prices have trapped some investors in gold bullion scams in which a seller offers to retain “purchased” gold in a “secure vault” and promises to sell the gold for the investor when it gains in value. In many instances the gold does not exist.
— Foreign Exchange Trading Schemes. Currency trading and foreign exchange (forex) trading schemes can be particularly harmful to unsuspecting investors. Trading in foreign currencies requires resources far beyond the capacity of most individual investors. Promoters profit by charging high commissions or selling investment strategies assuming that trades are actually made. Too often, there are no trades; the money is simply stolen.
— Exchange-Traded Funds (ETFs). While ETFs resemble mutual funds in many respects, some, such as leveraged and inverse ETFs, may contain hidden traps and complexities, and may consist of highly leveraged bundles of exotic financial instruments, including options and other derivatives. These types of ETFs are primarily designed for short-term trading (such as day-trading), and not for buy-and-hold strategies.
Contact the ASC at 1-800-222-1253 with inquiries concerning securities broker-dealers, agents, investment advisers, investment adviser representatives, financial planners, registration status of securities or debt management programs, to report suspected fraud or to obtain consumer information. The ASC offers free investor education and fraud prevention materials in print, online and through educational presentations, upon request.
Joseph Borg, Executive Dir., AL Securities Commission
Joseph Borg is Director of the Alabama Securities Commission. This article is provided by a generous grant from the Investor Protection Trust:,
www.investorprotection.org.
