State Warns of Scams Amid Stock Market Volatility

Ohioans can protect their hard-earned money by being alert to the top five investment scams being perpetrated against Ohio investors, says David Goodman, Director of the Ohio Department of Commerce.

For the fourth consecutive year, Ponzi schemes lead the list of the Division's top five investment scams. The list contains the financial products and practices that con artists are using to entice investors in the midst of volatile stock markets and a challenging economy.

"Con artists prey on peoples' fears by exploiting today's headlines with promises of 'guaranteed' returns at no risk. Don't be fearful. Be knowledgeable. There is no such thing as a no risk/high return investment," Goodman said.

This year's top five scam list is:

• Ponzi schemes
• Unlicensed and unregistered sales
• Affinity fraud
• Promissory notes
• Distressed real estate schemes

Before investing, make sure the person is licensed and the security is properly registered. Ohio Securities Commissioner Andrea Seidt warns Ohioans to be aware of potential con artists in their life. "Investment scams are often crimes of trust, perpetrated by people we least suspect to cause us harm like family members, neighbors, longtime friends and those with whom we worship," she said. "Sadly, con artists exploit these personal relationships. Investors should fully investigate every investment opportunity no matter how well they think they know the promoter. If given the chance, a con artist will quickly betray your loyalty and take you for everything you've got."

Director Goodman encourages Ohioans to take their time before making a decision. He urges Ohioans to call the Division of Securities at 1-877-NVEST411 (1-877-683-7841) or go to the Division's website at www.com.ohio.gov/secu to learn if the promoter is licensed or if the security is registered. "Do not feel pressured to make a quick decision. Read the prospectus or offering circular in full and ask questions with a healthy dose of skepticism until you fully understand the investment," Director Goodman said.

The Division of Securities warns the public of the following investment scams:

Ponzi schemes. A Ponzi scheme promises high returns to investors and uses money from new investors to pay earlier investors. These schemes eventually collapse with the later investors losing their entire investment. Many of these schemes include unregistered and fictitious securities.

Unlicensed and unregistered sales. The Division has identified a consistent increase in cases of unlicensed salespeople offering unregistered securities for sale. In many cases, investment products are offered by insurance agents who do not have a securities license. Investors should insist that any time anyone recommends or suggests any transaction related to an investor's stocks, bonds, mutual funds or other securities holdings, the person must produce a proper license. In addition, investors need to verify that the security has been properly registered with the Division of Securities.

Affinity fraud. Affinity fraud occurs when an investment promoter takes advantage of people's tendency to trust those who share similarities with them, such as attending the same place of worship, being a member of the same race or ethnic group, or sharing common friends or hobbies. Investors should be especially wary of testimonials from family, friends and acquaintances who express enthusiasm for their investment's success.

Promissory Notes. Investors seeking safety in uncertain economic conditions or those enticed by the promise of big returns may suffer deep losses investing in unregistered or fraudulent promissory notes. These notes (often private, informal loan arrangements) give investors a false sense of security with promises or "guarantees" of fixed interest rates and safety of principal. However, even legitimate notes carry some risk that the issuers may not be able to meet their obligations. Unregistered promissory notes are often covers for Ponzi schemes and other scams.

Distressed Real Estate Schemes. Investment offerings involving distressed real estate have been on the rise following the collapse of the real estate bubble. While many legitimate investment offerings are tied to real estate, investment pools targeting distressed real estate have become increasingly popular with con artists as well as investors. Investments in properties that are bank-owned, in foreclosure, pending short sales or otherwise in distress inevitably carry substantial risks and should be evaluated carefully.

Before investing, Director Goodman encourages investors to call the Division's Investor Protection Hotline at 1-877-NVEST411 (1-877-683-7841) to ask:

• Is the brokerage firm and salesperson licensed to sell securities in Ohio?
• Have any enforcement actions been taken against them?
• Has the security been properly registered with the Division of Securities?

The department's "Con Artist" campaign is featured at www.conartist.ohio.gov. It includes print materials, advertisements and other valuable information.