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Top Investor Risks

Everything old is new again. Even in the new year, scammers will use tried and true scams continue to attract investors. Here's a summary of some top investor threats - everything from outright fraud to legitimate but risky investments.

  • Gold. Schemers promise "guaranteed" returns with a stake in an active or soon-to-active gold mine that will bring quick riches. In reality, gold investments can be highly speculative and risky. More than 150 people, most of them Oregonians, lost $2.6 million in a 2013 gold-mining scheme that involved unlicensed sellers promoting unregistered securities. Learn more.

    LaVonne Treat was one who invested in the gold mine. See her story.

  • Oil and gas. The schemer may offer investments in oil or gas wells in Texas or Oklahoma and tout their productivity. While appealing to those frustrated with the stock market or skeptical of Wall Street, these tend to be risky and unsuitable for smaller investors who cannot afford the risk. In early 2013, Oregon regulators ordered a Louisiana man to refund $25,000 to an Oregon couple that invested in an oil and gas venture in Texas.

  • Promissory notes. Often pitched as personal loans with the promise of big returns, buyers may suffer deep losses if the notes are unregistered or fraudulent. Unregistered promissory notes are often covers for Ponzi schemes.

  • Ponzi schemes. This is the art of deftly moving money from one investor to another so it appears to make money. In reality, the Ponzi pays early investors with funds from later investors. All end up losing all or most of their money. Ponzi operators and other fraudsters often target members of religious, ethnic or other groups with common interests. Members of the group find it hard to believe that "one of their own" could scam them. See how a Ponzi scheme works.

  • New technology. Schemers are good at touting the newest technology – all they need are a couple of “cutting edge” investors to get off the ground. The schemers may use a prototype called a "black box" to convince you to invest. Watch Avoiding Technology Scams on YouTube.

  • Real estate investment schemes: Real estate investments are the second-most common product leading to securities fraud investigations, according to the North American Securities Administrators Association. While legitimate real estate investments can be an important part of a diversified investment portfolio, there are big risks with many types of real estate investments. In particular, state regulators have seen problems with:
    • non-traded real estate investment trusts (REITS)
    • properties that are bank-owned, pending short-sale, or in foreclosure
    • investments supposedly secured by an interest in real property that actually lack any remaining equity

  • Scam artists using self-directed IRAs to mask fraud. Self-directed IRAs allow the owner to invest in whatever he or she wants, and also shifts the responsibility to research opportunities and avoid scams to the owner. Custodians and trustees of self-directed IRAs may have a limited duty to protect the owner and may not evaluate the quality, value or legitimacy of an investment or its promoters.

Upcoming risks

  • Crowdfunding: 2014 promises a flurry of Internet investment pitches as the Securities and Exchange Commission writes rules to make it easier for small companies to raise capital online versus going through the stock market. Websites called "funding portals" will connect investors who meet certain standards with businesses that can raise up to $1 million every 12 months. There are caps on how much investors can invest, based on net worth, but both small businesses and investors could lose if they are not careful. Just a few of the concerns:
    • Are the funding portals legitimate? Small businesses, as well as investors, should verify the legitimacy of a portal before using its services.
    • A high percentage of small businesses fail. Are you prepared to lose the use of your money for a long time? Forever?
    • Limited regulatory oversight means that, more than ever, investors must research the people and the investment opportunities to separate scams from legitimate offers and to assess risk.

  • Internet offerings: Be wary of investment opportunities you learn about through the Internet. When you see an offering- whether it is on a funding portal, in an online newsletter, on a message board or in a chat room -do your homework to avoid scams.

The North American Securities Administrators Association and Oregon securities regulators compiled this list.

Need a speaker?
Diane Childs, outreach coordinator, provides free presentations on preventing financial fraud for associations, service groups, chambers of commerce and others. Contact her at diane.m.childs@state.or.us or phone her directly at 503-947-7423 or (toll-free) 1-866-814-9710.