Thursday, April 15, 2010

Beware These 10 Investment Scams.

There are the two times when investment scams are most prominent: the best of times and the worst of times. At the heart of an investment scam is one person taking advantage of another, so it's not surprising that scammers focus on the desperate and the greedy - both have a strong emotional motivation for the scam artist to tap into.

CNBC recently posted their list of the top 10 investment scams over the past two years.

Here's the list, and what I think of it:

10. Leveraged Exchange-Traded Funds (ETFs).



I'm not sure I'd call these a scam. A leveraged ETF is highly volatile, and focuses on exotic financial instruments, options, derivatives and generally the sort of "toxic assets" that brought down the titans of investment banking. They're fairly dangerous for the independent investor, but I don't know that they are a scam.

9. Speculative Inventions and New Products



This investment is easily abused, so it makes sense to be on the list. Venture capitalists make big profits here, but they're not suitable for retirement savings.

8. Short-Term Commercial Promissory Notes



These notes are usually 9 months or less in duration, and are often promoted as being "insured" by companies outside the U.S. that are not licensed for business in the U.S..

7. Entertainment Investments



This category includes movies, infomercials, and internet sites. They unregulated and risky.

6. Real Estate Investment Schemes



It's no surprise to see these on the list. With record foreclosures, scammers are out in full force offering to save people's homes, or fix their mortgages. The flip side is the scammer that sells information or classes promising people that they can make large sums by buying foreclosed property and flipping it for more than the foreclosure value.


5. Private Placement Offerings



Another case where existing regulations are misused and abused by con artists.

4. Life Settlements



life settlements are another gray area which invites scammers and con artists.

3. Natural Resource Investments



As the global economy rebounds and the need for energy increases again, expect these investments to become a favorite of scam artists.

2. Gold Bullion and Currency Scams



I can't read a post in an investing or finance forum without crossing some troll posting a link to his gold or forex site promising to cashing in on the coming apocalypse. 'Nuff said.

1. Ponzi Schemes



Every heard of Bernard Madoff?


How to avoid investment scams



The cardinal rule of investing will keep you out of most of these traps - know what you're investing in. If you don't understand it, stay away. Beyond that, if you're not sure the investment or the guy selling it is legit, you can check your state securities regulator on NASAA.org and contact him with the name of the person that asked you to invest and give them the name of the offering.

Also, if it sounds too good to be true, it probably is. Unusually high and "guaranteed" rates of return are definite red flags.

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