Regulators Warn: Investor Scams, Like Flu Virus, Will Mutate to Adapt to New Federal Financial Reform Bill

"Securities fraud is a lot like the flu virus," said Securities Commission Chairman Robert Lam. "It evolves and adapts to each new regulation or restriction. We think investors should be especially wary of any new investment vehicles just because of the new law."

Lam issued the advice as the Pennsylvania Securities Commission today joined other state securities regulators from around the country in issuing their annual list of "Top 10 Investor Traps."

"Most of the items on the list are repeats from last year," noted Commissioner Tom Michlovic. "But people can expect them to have a slightly different look, maybe claiming to represent a way to make more money in a 'down market' or even offer increased safety of principal."

Most investment frauds and scams play off today's headlines, Commissioner Steven Irwin advised. "In Pennsylvania, because of the Marcellus Shale boom, people need to be especially wary of get-rich-quick deals involving natural gas leases or drilling related activities. Financial uncertainty has made gold stocks or bullion deals another popular way to part investors from their nest eggs."

"Each year, we get together with other state securities regulators through the North American Securities Administrators Association (NASAA) to create the Top 10 list because it helps remind investors to be wary," Lam said. "The vast majority of securities offerings are legitimate and represent good investment vehicles for many people. But the devil is in the details and a small percentage of people out there are just looking for ways to deal from the bottom of the deck."

Michlovic noted that the more popular the investment idea is - like selling stocks in "green companies" or environmentally-friendly products - the more it seems to attract scam artists as well. "These people look for ways to get inside of the average investor's defenses - to set the hook and reel in the fish."

"Knowledge, attention to detail and a healthy sense of skepticism are the best defense against investment fraud," Irwin said. "State securities regulators provide detailed background information about those who sell securities or give investment advice, as well as about the products being offered. The more you are prepared, the better your chance of sidestepping a trap that can leave you in a financial hole for many years."

Sale of Exchange-Traded Funds (ETFs) to parties who are least able to withstand the risks involved.
Bogus Foreign Exchange Trading Schemes masquerading as bona fide investments.
Gold and Precious Metals deals that trap investors with high redemption costs or, worse, where investments are not, in fact, backed by precious metal holdings.
Green Schemes where scammers exploit headlines claiming secret processes to clean-up the Gulf of Mexico oil spill or produce endless "clean" energy, such as wind energy or wave energy.
Life Settlement Investments sold by unlicensed and unscrupulous operators who claim to be buying up beneficiary rights to life insurance policies which, in turn, are promised to yield substantial returns. Even where legal, these investments are not suitable for risk-averse investors.
Oil & Gas Schemes play off current interest in Pennsylvania's natural gas fields in the state's Marcellus Shale formation. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors and are often accompanied by high sales commissions.
Affinity Fraud abuses an investor's membership or association with an identifiable group to convince or create trust in questionable or shaky investments.
Undisclosed Conflicts of Interest on the part of brokers or salespeople can result in individuals being steered to investments that don't represent their best interests. Some salespeople can receive lucrative commissions when they sell a product that is risky or inappropriate for an investor.
Private or Special Deals, while legal, can be more easily abused by sales people because they are not subject to the same review as general securities offerings.
"Off the Books" Deals that might be offered by salespeople separate and apart from a brokerage's regular offerings may or may not be legal but they definitely do not come with the oversight and support of your regular brokerage house.