New Scams Threaten Investor Nest Eggs


New types of scams are posing threats to investor well-being. The North American Securities Administrators Association (NASAA), a group of state securities regulators) has identified four new types of fraud to go along with the 6 persistent fraud threats that round out their Top Ten Threats to Investors.

At the top of the list of new threats are crowd funding and internet offers. The 2012 Jobs Act relaxes rules that would otherwise require disclosures about the risks and backgrounds of the promoters on the dubious hope that making it easier for start-ups to raise money from investors will result in more jobs. By definition, start-up companies are riskier than average since they have no track record. Despite the fact that regulations permitting crowd funding have yet to be written, 1,600 to 1,700 new Internet domain names relating to crowd funding have appeared.

Second on NASAA’s list of new threats is investment advisers. The Madoff ponzi scheme was operated by a trusted investment adviser and advisory firm. Investors should never, ever allow an investment adviser or advisory firm (or one of their affiliates) to have actual custody of their funds. Rather, those funds should be held in accounts at an independent and financially sound financial institution. NASAA notes that many of advisory firms do not have adequate compliance and examination procedures in place.

Third on NASAA’s list of new threats is self-directed IRAs. Scam artist use them to make their fraudulent schemes seem legitimate. Scam artists also like self-directed IRAs because they allow the non-conventional investments they favor, such as such as nontraded REITs, tenant-in-common deals, and private (Reg D) investments). As John Waggoner of USA Today wrote in his recent column on the subject: “A scam artist can create a phony business for a self-directed IRA and bleed the account dry” (“New Scams threaten investors”).

Fourth on NASAA’s list of new threats is “EB-5 investment-for-visa scams.” EB-5 refers to a US immigration program tied to job creation ? a positive buzz word these days. Scammers falsely claim that an investment in their venture will be profitable and safe due to foreign investors, who may put at least $500,000 into a new business, and get a U.S. visa under the 20-year-old Immigrant Investor Program. NASAA says these investments often fail, and some are simply fraudulent.

Meanwhile, the usual suspects are flourishing as well. They include gold and precious metals, oil and gas drilling programs, promissory notes, private (Reg D) offerings, and recommendations by insurance salesmen to liquidate traditional stock and bond investments to buy variable insurance products, such as variable annuities.

Low interest rates and stock market volatility continue to drive some investors toward risky alternative investments. “Those with worst intentions love to take advantage of headlines and popular ideas that stocks and Wall Street are not to be trusted,” Matt Kitzy, head of NASAA’s enforcement section, was quoted as saying.

NASAA’s Top Ten List of threats to investors can be viewed at

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.