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A fraud may succeed because people hear and believe the promises of the promoter and do not investigate the investment (or the person promoting it). To help educate investors, securities regulators of NASAA’s Enforcement Section have identified the following financial products and practices as current potential threats for unwary investors.

If you have any questions about the material below, please contact your state of provincial securities regulator using NASAA’s interactive Contact Your Regulator map.


Social networking through the internet allows people to connect to one another more quickly and easily than ever before. Investment promoters increasingly are logging on to find investors … and their money.

A social network is a group of individuals (or organizations) who are connected through common interests, hobbies, lifestyles, relationships, faith or other beliefs. Platforms such as Facebook, Twitter, LinkedIn, eHarmony and other online social networks and communities have made it faster and easier for users to meet, interact and establish connections with other users anywhere in the world.

While social networking helps connect people with others who share similar interests or views, con artists infiltrate these social networks looking for victims. By joining and actively participating in a social network or community, the con artist builds credibility and gains the trust of other members of the group.

In online social networks, a con artist can establish this trust and credibility more quickly. The scammer has immediate access to potential victims through their online profiles, which may contain sensitive personal information such as their dates or places of birth, phone numbers, home addresses, religious and political views, employment histories, and even personal photographs.

The con artist takes advantage of how easily people share background and personal information online and uses it to make a skillful and highly targeted pitch. The scam can spread rapidly through a social network as the con artist gains access to the friends and colleagues of the initial target.

Online investment fraud has many of the same characteristics as offline investment fraud. Learn to recognize these red flags:

  • Promises of high returns with no risk. Many online scams promise unreasonably high short-term profits. Guarantees of returns around 2 percent a day, 14 percent a week or 40 percent a month are too good to be true. Remember that risk and reward go hand-in-hand.
  • Offshore operations. Many scams are headquartered offshore, making it more difficult for regulators to shut down the scam and recover investors’ funds.
  • E-Currency sites. If you have to open an e-currency account to transfer money, use caution. These sites may not be regulated, and the con artists use them to cover up the money trail.
  • Recruit your friends. Most cons will offer bonuses if you recruit your friends into the scheme.
  • Professional websites with little to no information. These days anyone can put up a website. Scam sites may look professional, but they offer little to no information about the company’s management, location or details about the investment.
  • No written information. Online scam promoters often fail to provide a prospectus or other form of written information detailing the risks of the investment and procedures to get your money out.

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Cryptocurrencies burst into the investing mainstream in 2017 as the values of some virtual coins and tokens skyrocketed, led by Bitcoin. Shortly after, the news featured coverage of new cryptocurrencies, coin exchanges, and related investment products. Stories of “crypto millionaires” attracted some investors to try their hand at investing in cryptocurrencies or crypto-related investments. But stories of those who bet big and lost also began appearing and continue to appear.

Before you jump into the crypto craze, be mindful that cryptocurrencies and related financial products may be nothing more than public facing fronts for Ponzi schemes and other frauds. And because these products do not fall neatly into the existing federal/state regulatory framework, it may be easier for the promoters of these products to fleece you. Investing in cryptocurrencies and related financial products accordingly should be seen for what it is: extremely risky speculation with a high risk of loss.

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Precious metals-related investments are on the rise. Historically speaking, the value of precious metals-related investments fluctuates even more than the stock market. For example, gold often moves in reverse of stocks and bonds, so when stocks are down, gold seems like a very tempting investment. Before jumping onto the precious metals bandwagon, there are a few things you might want to consider.

1. Multiple ways to invest: Investors can put money into actual gold, gold-related market investments (i.e. mutual funds and exchange-traded funds), futures and gold mining companies.

2. Mutual funds containing gold or precious metals: Although several mutual funds have gold in their names, you will not find any with more than 10 percent of assets invested in the metal itself. That is because mutual funds by law must earn 90 percent of their income from securities, and commodities, like metals, are not securities.

3. Stock in precious metals mining companies: Purchasing stock in a gold mining company is more volatile than purchasing physical gold because of the risks associated in discovering and mining the metal. Mining companies’ profits are leveraged to the price of gold, meaning that if the price of gold rises by a certain amount, earnings should jump by a greater percentage. If, however, the price of gold were to decline, investors should expect to see mining companies’ profits decline in similar fashion. Also be aware of “shell” mining companies, in which a company represents that it is in the gold mining industry when actually it exists solely to raise investor funds for fraudulent purposes.

4. Precious metals as an exchange-traded product: An investor purchases a share in a trust, and the shares represent ownership in physical bars of gold. Each share claims ownership of a small portion of actual gold. These trusts may have hidden costs that dilute the holder’s interest in gold. Investors having an investment in a gold Exchange Traded Fund (ETF) may be subject to higher rates of taxation than other types of mutual funds. They should therefore review the prospectus and consult with a tax accountant on this issue.

5. Buying online: As with any online transaction, be sure you go through a reputable dealer. When researching bullion dealers, you must exercise due diligence because no dealers are authorized or affiliated with the U.S. Mint.

7. It is a myth to say that precious metals are a safe investment: An investment in gold is not foolproof. An investor needs to know his or her investment objectives. Gold may not provide long-term investment returns. Gold is a commodity, and, like other commodities, its price can fluctuate dramatically.

8. Don’t catch “Gold Fever”: Gold attracts a crowd of promoters who would like to take investors’ money. Beware of “exploration” companies. Some may offer official-looking geological surveys or financial statements, when in reality there is little or no current production, just an appetite for new money.

9. Beware of Gold Investment Scams:

  • Scenario No. 1: A seller who offers to sell actual gold bullion and then retain the investor’s gold in a “secure” vault, and later promises to sell the gold for the investor as it gains in value. In many instances, the gold does not exist.
  • Scenario No. 2: A company encourages investors to cash out of their poor-performing investments to purchase gold. The investor ultimately ends up with a large bag of gold-colored coins with no monetary value. Remember, if you are advised to cash out investments and roll funds into a different type of investment, make sure the person advising this is licensed by your state securities regulator.

10. Precious metal IRAs: Individual Retirement Accounts (IRAs) make it possible for investors to buy gold with funds they already have. Gold must be insured and physically shipped before going into storage. Metal must be physically stored through an approved depository, meaning investors cannot keep coins in a closet.

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The advertisements seem too good to pass up. They tout high returns coupled with low risks from investments in foreign currency (“forex”) contracts. Sometimes they even offer lucrative employment opportunities in forex trading.

Do these deals sound too good to be true? Unfortunately, they are , and investors need to be on guard against these scams. They may look like a new sophisticated form of investment opportunity, but in reality they are the same old trap – financial fraud in fancy garb.

Forex trading can be legitimate for governments and large institutional investors concerned about fluctuations in international exchange rates, and it can even be appropriate for some individual investors. But the average investor should be wary when it comes to forex offers.

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In an environment of low interest rates, the promise of high interest promissory notes may tempt investors, especially seniors and others living on a fixed income.

A promissory note is a written promise to pay (or repay) a specified sum of money at a stated time in the future or upon demand. Promissory notes generally pay interest, either periodically before maturity of the note or at the time of maturity. Companies may sell promissory notes to raise capital, and usually offer them only to sophisticated or institutional investors. But not all promissory notes are sold in this way.

Promissory notes may be offered and sold to retail investors. Such notes must be registered with the Securities and Exchange Commission and/or the state(s) in which they are sold or qualify for an exemption from securities registration. Most promissory notes sold to the general public also must be sold by securities salespeople who have the appropriate securities license or registration from their state securities agency.

Promissory notes from legitimate issuers can provide reasonable investment returns at an acceptable level of risk, although state securities regulators have identified an unfortunately high number of promissory note frauds. Individuals considering investing in a promissory note should thoroughly research the investment – and the people promoting it. Investors should be cautious about promissory notes with durations of nine months or less, as these notes generally do not require federal or state securities registration.

Such short-term notes have been the source of most (though not all) of the fraudulent activity involving promissory notes identified by state securities regulators. These short-term debt instruments may be offered by little-known (or perhaps even nonexistent) companies and extend promises of high returns – perhaps over 15 percent monthly – at little to no risk. But if an investment sounds too good to be true, it probably is.

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