SALT LAKE CITY — As the New Year approaches, the Utah Division of Securities has released a top 10 list of investment warnings for 2011.
The list details fraudulent activity tracked by the division over the past year and offers advice on which investment schemes to watch for in the New Year.
"Securities fraud continues to make headlines, so we are asking citizens to add financial resolutions to their New Years list," said Francine Giani, executive director of the Utah Department of Commerce.
Among the top 10 scams to be aware of:
- Affinity fraud — When someone abuses membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Common affinity groups include religion, ethnicity, profession, education, common handicaps, language, age and any other common likeness or shared characteristics that allow investors to trust members of the group.
- Inverse and leveraged exchange-traded funds — ETFs that offer leverage or that are designed to perform inversely to the index or benchmark they track — or both — are growing in number and popularity.
- FOREX trading programs — FOREX is a term used to describe the legitimate foreign currency exchange market. The value of one nation's currency, as compared to another nation's currency, fluctuates continuously. These fluctuations can sometimes be quite dramatic and depend on innumerable complex factors.
- Is the person offering the investment licensed? Find out by calling the Division of Securities at (801) 530-6600.
- Is the stock offering registered? All securities sold in the state must be registered or exempt. Before you invest your money, call the Division of Securities to make sure it is a legitimate offering.
- Did the promoter give you a written prospectus summarizing the investment? Did he or she give you a copy of the financial statements showing how the company is doing? Has the promoter disclosed his or her prior business success or any previous criminal convictions or bankruptcies?
- Structured investment products — Securities derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance and/or a foreign currency. There are many types of structured products from market-indexed CDs offering protection of the principal invested, to a multitude of other structured notes and investments that offer limited or no protection of the principal. Of great concern with structured products is the investors' ability to fully understand the investment.
- Promissory notes — Written promises to pay a specified amount, to a specific entity at a specific time or upon demand, with or without interest. Promissory notes offered to retail investors carry significant risk.
- Start-up companies on the verge of "going public" — The lure of getting in on the "ground floor" of a hot start-up business is a classic temptation for investors. Promoters know this, but they also know the deal will be much sweeter if they can promise not only great profits, but also a way for the investor to cash out those profits relatively quickly, if necessary.
- Investment pools purchasing non-performing loans — By the time the housing bubble burst, the mortgage and banking industries had made many loans they shouldn't have. As the housing and commercial real estate markets folded, those loans (and pools of those loans) stopped producing revenue, freezing lines of credit in the economy and contributing to the Great Recession.
- Automatic trading software packages — Some investors have resorted to using a computer to make investing decisions for them. Companies are selling computer software programs that analyze the market and make trades for the investors. Not all are legitimate.
- Iraqi Dinars — Since the beginning of the Iraq War in 2003, speculators have sought to profit by purchasing Iraqi currency. The likelihood of investors seeing any return on dinars is slim to none, according to the division.
- Unsuitable variable annuity sales practices — Aggressive marketing of variable annuity insurance products are a concern, especially when seniors are targeted. Sales pitches, which are frequently offered in conjunction with free lunch seminars, are sometimes used in an attempt to scare or confuse investors by claims that these products will protect or insure them against any market losses. The divisions warned potential investors ask questions and perform the necessary due diligence before putting any money into an investment. Investors should do business with licensed securities brokers and advisers and report any suspicion of investment fraud to the Utah Division of Securities. For more information, call 800-721-7233 or visit www.securities.utah.gov.
"As consumers look to re-energize their retirement investments in the New Year, we urge investors to protect their nest egg by checking out a promoter's background and any investment offer with our Division," said Keith Woodwell, director of the state Division of Securities.