Top scams target your investment dollars

Some good info here...steve_o, reprinted for your convenience,
link to original article.

By Cosby Woodruff

Some investment scams prey on charity and some prey on greed, but they all rely on deception, according to the Alabama Securities Commission, which last week released its annual list of the 10 biggest investor traps.

ASC Director Joseph Borg said the list reflects the investment scams that cost Alabama residents the most each year.

He said his office does not estimate how much money scams take each year, but he said national estimates put the cost at $40 billion annually.

The most popular scams in Alabama prey on the victims' religion, he said.

Those rip-offs, called affinity frauds, often being when the scam artists befriends a church leader such as a preacher or deacon. Once the leader invests and recommends the investment, other church members are likely to follow.

Borg said these frauds are particularly effective when the victims think part of the profit will benefit the church.

Affinity frauds are not limited to churches, but also can strike at members of ethnic, cultural and professional groups.

"In our state, it is mostly religious," Borg said. Pyramid schemes, where money from later investors is used to pay off earlier investors, are common in this type of fraud.

"I have seen more money stolen in the name of God than anything else," Borg said.

He said investigating investment fraud is difficult because victims often are afraid to come forward because they think the investment failed because of their lack of faith.

"They won't come forward because they think we are interfering with God's plan," he said.

Affinity scams rely on a person's charity and depend on putting the victim's mind at ease by gaining a leader's trust first.

Most of the scams on the ASC list take advantage of a person's greed and make themselves credible in other ways.

"The best scams are ripped right out of the headlines," Borg said. "You have to present a realistic-sounding opportunity."

The hottest opportunity from today's headlines is an oil and gas scam. Rising energy prices make victims quicker to invest in risky petroleum ventures, Borg said.

At best, the scammers are unlicensed and unqualified, at worst they plan to take the money and run. Either way, Borg said, investing in such ventures is usually unfit for novice investors.

Other scams that focus on sounding like legitimate investments are based on foreign exchange trading, prime bank schemes, private securities offerings and real estate investment.

In most of those scams, the investor is drawn in by a promise that could be legitimate, but is based instead on false information. Scam artists almost never have proper credentials to sell the security but are looking for easy victims.

A fast-growing scam category is Internet-based scams. The Web allows scammers to reach victims much faster and makes tracing the scam more difficult.

Investors should be wary of investment pitches in unsolicited e-mails and other electronic communications.

Other scams offer investments that might be right for some investors but entirely wrong for others. Yet others prey on victims through investment seminars and through unregistered products.

Many of those are targeted at older individuals who may not have saved enough for retirement and are trying to catch up, Borg said.

"They have retirement looking and are approached by someone offering a 20 percent return," he said. "They get blinded by the need to catch up."

Most scam victims have lost their money by the time they realize they are being ripped-off, Borg said.

That's why he urged investors to call his office at 1-800-222-1253 before investing through any solicitation. He said investors should ask whether the person and the product are properly registered and licensed.

If someone suspects they are being ripped off, Borg said they should report it without delay to allow the ASC to stop the scam, prevent others from being scammed and recover assets.

The reload scam did not make the list, but Borg said it is always a threat. In that scam, scammers approach victims twice, often promising to help recoup the money lost on the first scam.

"When people get desperate, they don't think logically," he said. "Reload scams can be very successful."

posted by steve_o @ 5/21/2007 01:20:00 PM