The Investor Traps

How many times have you fallen for the friend who came up to you and ask if they can borrow $10? They claimed that they will pay you back on Friday. The problem, they did not tell you what Friday in what year.  On Friday, May 18, 2012, I woke up to hear on the Financial News Network that Facebook was going public. On every TV station they talked about Facebook going public. A person at work asked me if I thought Facebook would be a good investment. I told them that Facebook is going to be “the biggest pump and dump in History.” It was priced at $38. Then on the open it was $42.05 and closed the day at $38.18.   By Monday May 21, 2012 at 10:00 AM, the stock sold at $33.00. I woke up on Wednesday May 23, 2012 at 7:00 AM and found that Facebook was selling at $30.45 in after hours trading.

Above is a picture of a succubus. I often fall for the cute ones that cost me the most money.

Someone got the national media to hype the stock while the people holding the original shares dumped the stock on the unsuspecting public.

I gave you two examples of investment traps that people encounter every day.  The first is the one-on-one trap. You know the person so you feel comfortable investing in them. The second, because it is on TV, it must be an approved safe venture. So you feel safe investing in it.  We are going to spend some time going over the top investment traps that people will attack you with.

The Distressed Real Estate Schemes. You seen the infomercials on TV, you can become rich just by picking up some properties dirt cheap, fixing them up and renting them out. Investments in property that are bank-owned, in foreclosure, pending short sale, or otherwise in distress carry substantial risks and should be evaluated carefully.  On the high end, promoters may come to you with Real Estate Ventures. They must be registered with the state or federal securities regulators.  Check them out before doing anything. 

Energy Investments. When I was younger, people always tried to swindle me into Oil and Gas Limited Partnerships. Swindlers use high pressure marketing tactics touting the mystique associated with untapped oil and gas reserves and bountiful production runs.  Genuine oil and gas investments almost always bare a high degree of risk. In these ventures you can stand to lose your total investment. These ventures are poor alternatives for those planning for retirement. 

Precious Metals. With the advertising of higher precious metal prices and the promise of an appreciating asset, many unsuspecting investor have been lured into a variety of scams. Sometimes the promoter seeks capital for purchasing equipment to open dormant mines. People are always selling gold, silver, and precious stones that are not what they appear to be.  Plus there are no guarantees with gold or other precious metals in any market, even the legitimate ones.

Promissory Notes. These IOUs are usually sold by small businesses. They are very speculative and many times they are not paid back. Even legitimate notes carry risk that the issuers may not be able to meet their obligations.  These notes are often pitched as personal loans or short term business arrangements. Investors should be aware that Promissory Notes should be properly registered with their state or federal regulators.

Securitized Life Settlement Contracts. Life settlement contracts are investment in the death benefits of insurance policies that insure the lives of unrelated third parties.  This is an area were professionals that specialize in this field have problems with. I suggest that you stay away from this type of venture completely.  

         

Affinity Fraud. When someone approaches me and says that they want me to help them sell a product or service to Blacks or Native American people, my guard goes up.  Marketing a fraudulent investment scheme to members of an identifiable group or organization is a highly successful and lucrative practice for Ponzi scheme operators and other fraudsters. In the past 10 years, one in four frauds was marketed to affinity groups. They especially like to pick on the elderly, retired, religious, and ethnic groups.  

Bogus and Exaggerated Credentials.  Investors should press for full disclosure and the meaning behind all designations behind the professional’s name. If you are suspicious about claims of credentials, you should talk to your state regulators. Many people claim to be experts in the field but have no real training to prove it. This maybe your first clue that you are being sucked into an illegal scheme.    

   

E-Trading.  The securities markets are constantly evolving to provide investors, speculators, and gamblers with new products, different platforms, and a variety of choices. People should be careful of the potential of fraud. Always review your trades. Know what the security that you are buying and sell is trading for before you get involved.  Make sure that you change your passwords on your accounts at least every three months. Never give out your Account Number, ID and password to others.  

Private Placement.  I buy Over the Counter (OTC) Corporate Bonds on a regular bases. However, I buy them with the knowledge that I may not be able to sell them. I wait for them to mature. Investors should be aware that, in the case of legitimate issuers, private placement offerings are highly illiquid, meaning that they generally lack transparency and have little regulatory oversight.  Scammers and unscrupulous promoters use securities that are not sold on exchanges to dump worthless stock or bonds on people for cash.  Invest in this area after doing plenty of research. 

Securities and Investment Advice Offered by Unlicensed Agents. I know of a person that decided to open an IRA with an insurance salesman that they met. The salesman sold insurance but wanted to manage the money that this new client had. He misrepresented himself to the client and sold the client a whole life insurance policy with high mutual fund hidden fees and long lock-up periods to cash out of the funds. This person started with $150,000 and when they found out that they had been scammed, they had $72,000 left.  Investors should insist that anyone giving investment advice give them information on their qualifications for doing so as well as the fees involved in buying, holding, and selling the investments in question.   

You the investor, trader, speculator, or gambler must be aware of your situation at all times. Many scammers set traps for unsuspecting people. The scammer’s objective is to relieve you of your hard earned money.