Commissioner Burke Names "Top 10" Threats to Investors

March 22, 2005

State Banking Commissioner John P. Burke today announced the 10 most common ploys being used to cheat investors both in Connecticut and nationwide out of hundreds of millions of dollars.

"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 Commissioner Burke. "Be diligent and take the time to investigate an investment opportunity before investing hard-earned savings. There is no free lunch."

Last year, the Banking Department's Securities and Business Investments Division initiated administrative actions based on a multitude of violations, including aggressive penny stock sales, hedge fund sales, sales of unregistered business opportunities and sales of unregistered securities by unregistered agents. A survey was conducted among state regulators across the country and, based on the order of prevalence and seriousness, identified the following top 10 threats to investors for 2005:

1. Ponzi Schemes: The premise is simple: pay early investors with money raised from later investors. 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 the promise of "limited or no risk" and high returns.

4. Promissory Notes: Empty promises can leave these notes worth less than the paper on which they are printed.

5. Senior Investment Fraud: Because of their access to 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 "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.

8. Affinity Fraud: Con artists are increasingly targeting religious, ethnic, cultural, and professional groups.

9. Variable Annuity Sales Practices: Senior investors should beware of the high surrender fees and steep sales commissions agents often earn when they move investors into variable annuities.

10. Oil and Gas Scams: With oil topping $50 a barrel and continued Middle East instability, regulators warn that con artists may renew schemes promising quick profits in oil and gas ventures.

Three scams also were cited for "dishonorable mention," including penny stocks, private placements, and investment seminars.

Before making any investment, Commissioner Burke urges investors to ask the following questions: Are the seller and investment properly licensed and registered? 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?

"Always insure that every investment is consistent with your personal goals and objectives and be wary of the enticement for quick profit," suggested Commissioner Burke. "No investment is risk free, and so be cautious with phrases like "guaranteed", "risk free", or "as safe as a bank CD". Usually the greater the return, the greater the risk."

Commissioner Burke also recommends that investors contact the Banking Department's Securities and Business Investments Division, by calling (860) 240-8230 or toll-free 1-800-831-7225, with any questions about an investment product, broker or adviser, before making an investment. "One phone call can save a lot of money and heartache," said Commissioner Burke.

For more information, visit the Department of Banking's Web site to learn more about common scams and ways to avoid becoming a victim.