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For Immediate Release:  
For Further Information Contact:
March 24, 2005

Office of The Attorney General
- Peter C. Harvey, Attorney General
Bureau of Securities
- Franklin L. Widmann, Chief

 

Peter Aseltine
609-292-4791

 

Attorney General Warns Investors of Top 10 Scams for 2005

TRENTON - Attorney General Peter C. Harvey and the New Jersey Bureau of Securities today issued a warning about the Top 10 scams that con artists are likely to employ in 2005 to cheat investors out of their savings.

“Although few decisions we make are as important as how we invest for our long-term financial security, it’s easy to be confused by the complex array of investment options available,” Attorney General Harvey said. “Con artists prey on that confusion and the fears that investors, particularly the elderly, have about their finances. It’s tempting to jump at the promise of a high return to try to improve your financial outlook. We urge investors to be wary of big promises and to call the Bureau of Securities before investing to ensure that salespeople and investments are legitimate.”

The New Jersey Bureau of Securities (BOS) registers and regulates individuals and firms that provide investment advice or sell securities in New Jersey. These securities include stocks, bonds, mutual funds and other investment vehicles. The BOS can be contacted at 973-504-3600 or through Consumer Affair’s Web site at www.NJConsumerAffairs.gov.

“Investors should keep their guard up anytime anyone offers an investment opportunity. It pays to remember that if an investment sounds too good to be true, it usually is,” said Franklin L. Widmann, Chief of the New Jersey Bureau of Securities and President of the North American Securities Administrators Association (NASAA).

This ranking of Top 10 threats to investors for 2005 is based on the order of prevalence and seriousness as identified by an annual survey of state securities regulators conducted by NASAA:

    1. Ponzi Schemes:
      Named for Charles Ponzi, who in the early 1900s swindled investors out of $10 million by promising 40 percent returns, these schemes are a perennial favorite among con artists. The premise is simple: promise high returns and pay early investors with money raised from later investors. Inevitably, the schemes collapse and the only people who make money are the promoters who set the Ponzi in motion.
    2. Unlicensed Individuals Selling Securities:
      Anyone selling securities without a valid securities license should be a red alert for investors. Remember: No license, no sale.
    3. Unregistered Investment Products:
      Con artists bypass stringent state registration requirements to pitch viatical settlements, pay telephone and ATM leasing contracts, and other investment contracts with promises of “limited or no risk” and high returns.
    4. Promissory Notes:
      These short-term debt instruments often are sold by independent insurance agents and issued by little known or non-existent companies promising high returns – upwards of 15 percent monthly – with little or no risk. When interest rates are low, investors often are lured by the higher, fixed returns that promissory notes offer. These notes, however, can become vehicles for fraud when the issuer of the note has no intention or capability of ever delivering the returns promised by the salesperson.
    5. Senior Investment Fraud:
      Because they have built a lifetime of savings, seniors continue to face investment fraud by con artists peddling unsecured promissory notes, viatical settlements and other investments that are either fraudulent or unsuitable for them based on their particular financial needs.
    6. High-Yield Investment Schemes:
      Con artists lure investors with promises of triple-digit returns through access to “risk free guaranteed high yield instruments” or something equally deceptive.
    7. Internet Fraud:
      Stock promoters are using online “boiler rooms,” instant messaging, and fake websites to lure investors into “pump-and-dump” stock schemes, in which the promoter creates a false demand for a stock, temporarily raising its price, then sells or “dumps” the stock at the inflated price.
    8. Affinity Fraud:
      Con artists know that it’s only human nature to trust people who are like yourself. Con artists are increasingly targeting religious, ethnic, cultural and professional groups, using the victim’s group identity to gain his or her trust.
    9. Variable Annuity Sales Practices:
      Senior investors, in particular, should beware of the high surrender fees and steep sales commissions agents often earn when they move investors into variable annuities. The benefits of variable annuities – tax-deferral and death benefits, among others – come with strings attached and additional costs. Some investors are misled with claims of guaranteed returns, when variable annuity returns actually are vulnerable to the volatility of the stock market. Variable annuities make sense only for consumers willing to invest for 10 years or longer. They are not suitable for many retirees who cannot afford to lock up their money for a long time.
    10. Oil and Gas Scams:
      With the Middle East unstable and oil above $50 a barrel, regulators warn that con artists may renew schemes promising quick profits in oil and gas ventures.

Also cited for “dishonorable mention” are penny stocks, private placements and investment seminars. NASAA offers additional information about each of the Top 10 scams, as well as tips on detecting con artists and avoiding fraud, in the NASAA Fraud Center at www.nasaa.org.

Before making any investment, Widmann urged investors to ask the following questions: Are the seller and investment licensed and registered in New Jersey? Has the seller given you written information that fully explains the investment? Are claims made for the investment realistic? Does the investment meet your personal investment goals?

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