Being the Victim of Securities Fraud
Important Tips for Investors
The decision to invest is a personal one that should
not be taken lightly. Investing, when based on informed
and sound decisions, can be a rewarding pursuit. It can
also be a devastating experience for those who are victimized
by unscrupulous individuals who hatch and carry out fraudulent
schemes that wipe out nest eggs and shatter people's lives.
Unfortunately, people lose their investments all the
only because of fluctuations in the stock market,
but as a result of fraud. In fact, the Federal Trade
Commission reports that every year, Americans lose more
than a billion dollars to investments that turn out
to be fraudulent.
According to the North American Securities Administrators
Association, a voluntary organization whose membership
consists of securities administrators in the 50 states,
the District of Columbia, Puerto Rico, Canada and
Mexico, the top 10 investment scams plaguing investors
- Ponzi schemes, in which swindlers promise high returns
to investors. However, the only people who make money
are the promoters who set these schemes into motion,
using money from previous investors to pay new investors. Inevitably, the schemes collapse when the promoters are unable to find new investors.
fraud, where volatile stock markets, low
interest rates, rising health care costs and increasing
life expectancy leave senior investors vulnerable to
investment fraud. Older investors are being targeted
by increasingly complex investment scams involving unregistered
securities, promissory notes, Ponzi schemes and viatical
settlements, which are interests in life insurance policies
of supposedly terminally ill people.
notes, which are short-term debt instruments
issued by little-known or, sometimes, nonexistent companies
that promise high returns with little to no risk.
- Unscrupulous brokers who sell securities while cutting corners or resorting to outright fraud to fatten their wallets.
- Affinity frauds that use people's religious or ethnic
backgrounds to gain their trust and steal their life
agents and other unlicensed securities sellers
who sell fraudulent or high-risk investments, such as
promissory notes, ATM and payphone investment contracts
and viatical settlements, by promising high returns
with little or no risk. While most independent insurance
agents are honest professionals, some are lured by high
commissions that come with these fraudulent and unauthorized
bank schemes, in which scam artists promise
investors triple-digit returns through access to the
investment portfolios of the world's elite banks.
fraud, whereby scam artists use the Internet
to find victims. They promote bogus offshore "prime-bank"
investments and publicize pyramid schemes, among other
- Mutual funds business practices, which are being plagued by scandals throughout the industry. State and federal as well as mutual-fund firms have launched a series of inquiries into mutual fund trading policies.
- Variable annuities, in which some investors are misled with claims of guarenteed returns when variable annuity returns actually are vulnerable to the volatility of the stock market. Variable annuities, which offer tax deferral and death benefits among other incentives, come with strings attached and additional costs.
Before you make any investment decision, you owe
it to yourself to do your homework. That involves
more than establishing a budget; identifying your
long- and short-term goals; and assessing your tolerance
for risk. It also requires that you get in touch
with the New Jersey Division of Consumer Affairs'
Bureau of Securities.
The Bureau is responsible for enforcing the New Jersey
Uniform Securities Act, which is designed to ensure
honest and fair dealings in the securities industry
and to protect investors from fraud. The Bureau registers
broker-dealer firms; representatives of broker-dealer
firms; investment advisers and financial planners.
By contacting the Bureau, you can get important information
about the investment professional or firm you're hiring,
such as whether the person or firm is registered and
whether that person or firm has a disciplinary history
with the Bureau or other regulatory agency. To check
with the Bureau of Securities regarding the financial
professional's reputation, contact the Bureau at 973-504-3600
or write: New Jersey Division of Consumer Affairs,
Bureau of Securities, P.O. Box 47029, Newark, N.J.
07101. You may also send an e-mail to the Bureau at:
Investing can be a positive experience provided you
are aware of the risks that come with it and take
the proper precautions to protect yourself and your
Here are some more helpful investor tips by the Bureau
- Take the time to interview at least three investment
professionals and obtain the registration and disciplinary
history on each of the professionals before settling
- Avoid doing business with financial professionals
who have a record of disciplinary actions, negative
arbitration decisions and/or civil litigation judgments.
- Call the Bureau to find out if the investment opportunity
is registered for sale in New Jersey.
- Keep notes concerning phone conversations and meetings.
Write down the date and time of each conversation and
where meetings occurred.
- Keep greed in check. If the return on an investment
sounds too good to be true, it probably is.
- Remember, con artists are usually extremely polite.
- Never assume that the investment is low-risk
or guaranteed to deliver a certain return and do not
rely on oral statements for assurance. Get all guarantees
in writing and make sure you understand the information
you are given.
- Once you've made an investment, carefully review your
account statements. Make sure you know where your money
is being held. General, you should receive account statements
from the custodian of the securities as well as from
your financial professional. Confirm that all transactions
are ones you've authorized.
- Always stay in charge of your money. Make sure you
fully read and understand your account statements. Your
statement should reflect only the investing you authorized.
If you find a discrepancy, raise the issue with your
broker immediately or the branch manager who supervises
- Know how much you're paying in commissions and fees.
Review your statements to check the performance of your
investments for this information. If you cannot find
this information on your statement, ask your financial
professional to calculate these figures and send them
to you. Do not work with a financial professional who
is unwilling or who claims to be unable to provide this
information to you.
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