Significant Investment Frauds
The North American Securities Administrators Association (NASAA) has identified the top ten investment frauds, some of which are directed particularly at elderly investors. The elderly are vulnerable — as are all investors — to all the fraud schemes, however, because current market volatility drives them to seek safe havens. Fraud promoters, preying on their fears, promise them low risks and high returns on their investments.
A new fraud on the list is high yielding "callable" certificates of deposit. These CD's, often sold to elderly people, don't mature for 10 to 20 years unless the bank, not the investor, calls or redeems them. Early redemption may result in huge losses. The sellers of these CD's often fail to disclose the risks and restrictions.
Another fraud that victimizes many elderly people is the use of promissory notes. Typically, the notes involve loans to companies made by investors in exchange for a fixed amount of periodic income. Legitimate promissory notes, however, usually are not sold to the public, and many of these schemes are fraudulent.
The other schemes include:
- Unlicensed individuals, such as life insurance agents, selling securities.
- Affinity group fraud, whereby scam artists who may be members of the group or claim to want to help the group target religious, ethnic, and professional groups.
- Investments in pay telephones and automated teller machines.
- Internet fraud involving stock price manipulation, illegal pyramid schemes, insider trading, and acting as a broker or investment advisor without being licensed.
- Ponzi and pyramid schemes.
- Viatical settlements whereby investors buy insurance policies through a broker. The policyholder is purported to be terminally ill, so the investor will be paid when the policyholder dies. In some cases, the policyholders aren't really dying and in other cases they don't exist. Even legitimate investments are risky because of the difficulty of predicting death.
- Prime bank schemes that promise risk-free, triple-digit returns on debt notes said to be guaranteed by the world's largest banks. The promoters of this scheme often claim that prime bank notes are usually only offered to large corporations, foreign banks, and very wealthy people.
- Investment seminars whose only beneficiaries are the promoters who make money on admission fees and sales of books and audiotapes.