Examples of Complaints, Improper Practices and Scams Securities
Under the law, fraud is illegal, but simply making a bad (or careless) investment is not. Not all investments are what they seem. Consumers should realize that fraudulent schemes are more common than most people realize, and they may be difficult to spot. Investors should obtain information about the investment and the promoter prior to investing. Investment risks should be carefully considered before making an investment as it is generally difficult to recover losses form a risky or fraudulent investment.
Avoid Being Scammed
- Know your salesperson. Contact the Securities Department at 1-800-628-7937 to check on the registration and history of any individual offering investments.
- Research the company. Make sure to fully understand any financial statements and prospectus documents provided. If not provided, ask for them. Contact the Securities Department to check on any company offering investments.
- Take time to understand the investment. Do not be pressured to buy today or lose the opportunity. Sound investments might fluctuate somewhat in a limited span of time, but if it is good today, it will be just as good next week.
- Talk it over with a trusted adviser. Do not take the word of the salesperson alone. If you don’t understand the investment or have questions, contact a third party not involved in the sale for advice.
Promissory Note Scams
A promissory note is a document issued to an investor who agrees to loan money to a company or individual with the expectation that the issuer of the note will make promised interest payments and will return the principal on the due date of the note. Although legitimate promissory notes do exist, in recent years the cases that the Illinois Securities Department has handled involving the issuance of promissory notes have generally involved fraud and the loss of investor monies. The most frequent targets are senior citizens with money to invest. Promissory notes are often sold to investors with promises of guaranteed high returns. For a period of time, the seller may in fact make interest payments, however, in many cases the interest payments eventually stop and the principal is never returned.
Private placements are generally a legitimate means for individuals and businesses to raise capital, however, recent enforcement actions by state and federal regulators highlight the fact that issuers and sellers of private placements may engage in misrepresentations or other forms of fraud. Investors should be especially careful with private placement agents who use high pressure sales tactics or promise high rates of return with little risk for the investor.
Trust is the key component in any scam. If the scam artist can make the consumer trust him, that consumer is less likely to ask hard questions about the product being offered. This is particularly true for investment scams. An easy way for con artists to gain the trust of several individuals at once is to join or work within a group or organization where trust is already established. This can be religious groups, civic clubs, military units, veterans groups – no group or gathering is completely immune. Once the scammer is on the inside, it is easy to work through the group to get new investors in the latest bogus scheme. It is important to check on the registration status of a salesperson before making any investment.
The use of the internet for investment purposes continues to grow each day. Although many companies use the internet for legitimate purposes, many scammers also use the internet to promote their fraudulent companies and investment schemes. The internet enables potential criminals to reach many consumers with little effort. It also offers low operating costs, anonymity and instant access to consumers around the world. Do not be fooled by websites that are well constructed and appear legitimate. Before responding to any email solicitations or investing in a company based on internet information, check to make sure the company and its salespeople are registered.
By now, everyone knows the name Bernard Madoff. But long before Madoff duped thousands of people and charities out of billions of dollars a scammer named Charles Ponzi was busy bilking people out of millions of dollars. In the 1920s, Charles Ponzi operated a scam selling bogus investments with promises of great returns. He paid interest to earlier investors with the proceeds of later investors while pocketing and spending a good deal of the money. The scheme continued until the pool of new investors dried up leaving the later investors with nothing but the loss of their money. Ponzi schemes continue to this day and are often not reported until later investors stop getting payments. Once a Ponzi operator is discovered, there is usually little investor money left.
The Secretary of State, Illinois Securities Department or their information providers shall not be liable regardless of the cause or duration, for any errors, inaccuracies, omissions or untimeliness of the information, or for any delay or interruption in the transmission thereof to the user, or for any claims or losses arising therefrom.