1. Ponzi Schemes

Named for swindler Charles Ponzi, these scams work like this: use money from later investors to pay early investors. Inevitably, the scams collapse and the only people who make money are the promoters who set the scam in motion. In 2004, the Pennsylvania Securities Commission broke up a massive Ponzi scheme and returned $10.6 million to 300 investors in Pennsylvania, Delaware, Florida, New Jersey, and Australia, following an investigation into claims of 24 percent returns in advertisements appealing largely to senior investors.

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2. Unlicensed Individuals Selling Securities

Individuals who sell securities or provide investment advice are required to earn a license before they can offer investments to the public. Unlicensed brokers selling unregistered securities often perpetrate fraudulent scams. Fraudsters also frequently use the promise of high commissions to lure insurance agents or investment advisers into selling fraudulent investments to their own clients. An Ohio unlicensed broker was sentenced to 4 years in prison and ordered to pay $1.5 million after an investigation determined he sold $7.9 million in fictitious investment certificates to approximately 140 investors by promising rates of return of 30 percent to 400 percent per year.

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3. Unregistered Investment Products

Legitimate investments, other than stocks sold on national exchanges, must be registered with state officials before they can be sold to the public. Con artists bypass this requirement because they know that stringent state registration requirements protect investors from their offerings of pay phone and ATM leasing investments, viatical settlements, promissory notes, investment trusts, and other unregistered securities. Most unregistered investments promise “limited risk” or “no risk” “high rates of returns" and “guaranteed returns.” Almost always, the only profits go to the promoters of these scams and investors are left holding the bag. For example, the Arizona Corporation Commission ordered Integrowth Financial Group to return over $2.3 million in investor funds and to pay a total of $100,000 in penalties after it sold unregistered investment contracts such as viatical settlements, pay phone investments, ATMs and an investment trust.

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4. Promissory Notes

Promissory notes that are marketed broadly to the general public often turn out to be investment scams. Promissory notes are sold as instruments that guarantee above-market, fixed interest rates, while safeguarding their principal investment. When interest rates are low, investors may be enticed by the high returns that promissory notes offer. These notes, however, can become vehicles for fraud when the issuer of the note has no intention or capability of ever delivering the returns promised by the sales person, leaving the note worth less than the paper on which it is printed.  For example, Ohio securities regulators in 2004 broke up a husband-and-wife team that sold $60 million in promissory notes to approximately 740 investors, predominantly to residents of northeast Ohio.

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5. Senior Investment Fraud  

Seniors, who build up a lifetime of savings, continue to face investment fraud by con artists peddling unsecured promissory notes, viatical settlements and other investments that are either fraudulent or unsuitable for them. Before doing business with any investment professional, senior investors should check with their state securities regulator to see whether the broker is properly licensed and if he or she has had any complaints or disciplinary problems. In New Jersey, the Bureau of Securities shut down the operations of an unregistered broker-dealer and his firm for allegedly swindling at least seven elderly women out of more than $360,000 in retirement savings for his personal use and benefit. California securities regulators derailed a “living trust mill” scam involving insurance agents acting as investment advisers who mislead and illegally pushed seniors to sell securities and buy annuities.

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6. High-Yield Investments

High-yield investments are a favorite of fraudsters who promise investors high returns through access to the investment portfolios of the world’s elite banks. The negative publicity attached to these scams has caused promoters in recent cases to avoid explicitly referring to “prime banks.” Now it is common to avoid the term altogether and underplay the role of banks by referring to these scams as “risk free guaranteed high yield instruments” or something equally deceptive. In 2004, Colorado and federal securities regulators broke up an international high-yield investment scam that promised investors monthly returns from 2 percent to 400 percent and defrauded more than 1,000 people in seven countries of approximately $56 million. California regulators in October shut down a prime bank scam promising returns of 15 percent per quarter.

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7. Internet Fraud

Internet investment fraud is a growing problem. Many online scams are merely new versions of scams that have been fleecing investors for years. For example, regulators have noted an increase in “online boiler room” activity promoting penny or microcap stocks on the Internet. Con artists also are using the Internet to issue and widely distribute bogus news releases to falsely inflate the value of these stocks before cashing out at the expense of unsuspecting investors.

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8. Affinity Fraud

It is only human nature to trust people who are like you. That’s why con artists often use their victim’s religious or ethnic identity to gain their trust and then steal their life savings. No group seems to be immune from fraud. In 2004, the California regulators revoked the investment adviser certificate of C+ Capital Management for defrauding nearly $36 million from investors in an affinity fraud scam targeting Korean citizens, many elderly. The investigation revealed that Won Charlie Yi owned and operated C+ Capital Management and raised nearly $36 million by luring investors from the Korean community to invest money in brokerage accounts he claimed he would set up for them. Investigators determined that Yi not only lied to investors about opening brokerage accounts and other vital investment information, but also deposited most of his clients’ funds into his personal bank account.

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9. Variable Annuity Sales Practices

Variable annuities are sometimes being sold to senior investors despite the fact that these products are not suitable investments for most seniors who may need quick access to their money for medical or other emergencies. Regulators are concerned that investors aren’t being told about high surrender charges and the steep sales commissions agents often earn when they move investors into variable annuities. Some investors are misled with claims of guaranteed returns when variable annuity returns actually are vulnerable to the volatility of the stock market. Securities regulators in Massachusetts filed a complaint against a unit of Citizens Financial Group, accusing the firm of "systematically targeting customers, including many senior citizens" to put their money in variable annuities.

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10. Oil & Gas Scams

With oil prices sky-high and ongoing instability in the Middle East, con artists may dust off a variety of oil and gas scams once prevalent in the 1980s to lure investors into unsuitable or fraudulent investments – ranging from leases in oil fields to unproven technologies designed to convert common substances into fuel. A Virginia couple was recently indicted for operating an oil-and-gas pyramid scam that lured investors from Kentucky, Kansas, Texas and other states to invest more than $3 million in wells that never existed. Oregon securities regulators cautioned the state’s investors against a scam involving the sale of interests in oil and gas wells from a promoter convicted in Colorado on similar charges. In Kansas, a Wichita man was sentenced in 2004 to prison for his role in an oil and gas investment scam that raised over $1 million from 91 investors through telephone sales. The con artist also was ordered to pay restitution to the victims in the amount of $1.63 million. Some investors received checks that were characterized as profits from production although the leases did not produce revenue. The defendants also converted a significant portion of the investors’ funds to their personal use.