The North American Securities Administrators Association ("NASAA"), an organization representing state securities regulators, recently issued its second annual list of the top ten scams plaguing investors this year. The "Top 10" list contains scams that are perennial favorites of con artists, and includes, in order of pervasiveness, the following:
- Internet Fraud. NASAA noted that the Internet provides con artists with a wide variety of scamming opportunities, including "pumping and dumping" penny stocks, and selling fraudulent offshore investments.
- Investment Seminars. According to NASAA, costly seminars by self-anointed gurus who promise that investors will "get rich quick" often result in wealth only for the seminars' organizers, who charge substantial fees for empty advice.
- Affinity Group Fraud. Con artists often pitch investment ideas to members of their own religious, ethnic, or political groups, playing upon an individual's "natural trust" of those similar to him or her, noted NASAA.
- Abusive Sales Practices. Although regulators are vigilant prosecutors of penny stock fraud, NASAA advised investors to remain "on guard" against persistent cold callers.
- Telemarketing Fraud. High-pressured cold calling is a prevalent means for con artists to sell investments, NASAA reported. Often, the scheme involves linking the investment's promise to highly publicized current events, such as potential Year 2000 problems, or computer technology breakthroughs.
- Promissory Notes. NASAA observed that the sale of "empty" promissory notes - those purported to be insured or otherwise secured, but which are not - is a fraudulent practice of increasing frequency. According to NASAA, these notes are often sold by life insurance agents who are not licensed as securities brokers and know little to nothing about the notes they are selling, but who nevertheless receive lucrative commissions from their sale.
- Viatical Investment Scams. Viatical contracts - agreements to trade up-front cash for the right to receive a terminally ill individual's death benefits - have increased with the number of deaths from cancer and AIDS. NASAA warned against the "extremely speculative" nature of these contracts.
- Entertainment Fraud. Playing on the glamour surrounding blockbusters such as the movie "Titanic," con artists often claim to sell a share of the next entertainment hit, warned NASAA.
- Ponzi/Pyramid Schemes. These cons - in which early investors are paid from later investors' funds - result in large profits for their organizers, but eventually implode before later investors get their promised returns.
- Illegal Franchising Offerings. NASAA commented that investors should continue to be wary before investing in a franchise, even though states have recently begun to regulate such investments. *