Investment Swindles: How They Work and How to Avoid Them Including 16 questions that can turn off an investment crook

Before You Invest, Investigate

Bear in mind also that, while separating you from your money is the swindler's primary goal, the very last thing he wants you to do is check him out. That could cause you not to invest or, worse still, alert regulators that someone they know well has set up shop in a new area or is running a new scam. For this reason, most con men deliberately make themselves difficult to investigate: By tailoring their schemes to operate in regulatory cracks where federal or national regulatory organizations may lack clear-cut jurisdiction; by operating in states or communities where authorities are known to be short-staffed or occupied with more pressing criminal activities; by changing their names or modus operandi, by stressing the urgency of the investment so you won't have time to investigate; and by targeting victims who may not know how or where to check them out.

Moreover, as described in swindle scenarios in this text, con men have numerous and ingenious ways of seeking to convince you there is no need to investigate. For example, your friends, neighbors or business associates invested and they made money, right? That, of course, is why ever-popular Ponzi schemes (named after the first person to perfect the referral technique) are so prevalent--and why you should never make investments based on tips, no matter how trustworthy the source.

While there is no way to know for certain whether a particular investment will make money or lose money, there is one thing you can be certain of: Any money you hand over to an investment swindler is lost the moment you part with it. The question is, how do you check out someone who is offering what sounds like an irresistible investment offer? Here are some of the ways:

• Find out whether the local police department or Better Business Bureau has complaints on file.
  If so, you can make your investment decision accordingly. But be aware that the absence of local complaints doesn't necessarily mean a firm or individual is on the up-and-up. It may simply mean that investors haven't yet become aware that they've been bilked. Or it may mean you will have the distinction of becoming the first victim in town. It could also mean that other victims have been too embarrassed to report their losses. Regrettably, that's not uncommon.
• Make a phone call to the financial editor of your local newspaper.
  Although newspapers don't give endorsements or make investment recommendations, they may be aware of a swindler who is working a scam in the area--and may even have published a warning article that you happened to miss. Then too, if readers are being pitched with suspicious-sounding investment offers, that's something an investigative reporter might want to look into.
• If the investment offer isn't local, don't be reluctant to make a long distance phone call or two.
  It could be that the police, Better Business Bureau or newspaper in the community where the offer is coming from will be able to provide information. Again, however, even the absence of such complaints doesn't necessarily mean the firm is legitimate. Some swindlers--particularly telephone boiler-room operators--try to maintain a low profile in their local areas. That lessens the likelihood of their coming to the attention of local authorities; it prevents prospects from dropping by to see their operations; and it makes it more difficult for out-of-towners to discover what they are up to.
• Check to see if your city or state has a consumer protection agency.
  Many do. If so, there may be information there about the person or firm that's offering the investment you are interested in. In any case, the agency should be able to provide names, addresses and phone numbers of other places you can check.
• Contact regulators.
  The majority of individuals and companies offering investments to the public are subject to some sort of regulation--and may be subject to multiple regulation. Those which trade in futures contracts and options on futures contracts are regulated by the Commodity Futures Trading Commission, a federal agency, and by National Futures Association, an industry-wide self-regulatory organization authorized by Congress. In the securities and securities options business, the federal regulatory agency is the Securities and Exchange Commission. There is also an industry self-regulatory organization, the National Association of Securities Dealers.

  The Federal Trade Commission has jurisdiction over advertising, franchises and business opportunities. Deals involving interstate promotion of land sales are regulated by the federal Department of Housing and Urban Development. By contacting the appropriate regulatory organization, you can generally find out whether the firm or person is properly registered to engage in that type of business and whether any public disciplinary actions have been taken against them. A list of some of the regulators you can check with is provided at the end of this text.

• Write or phone law enforcement agencies.
  Whether or not a person or firm is subject to the scrutiny of a regulatory organization, the fact is that fraud is against the law in every state of the nation. And if it involves interstate commerce--including the use of the mails or phone lines--federal criminal statutes apply. If an investment sounds suspicious, check with the appropriate agency. They may be able to furnish information or conduct an investigation of their own.

  The following are some you could contact:

  The office of the local public prosecutor, the state attorney general, and the state securities administrator. Someone in the local courthouse should be able to give you names, addresses and phone numbers.

  If the mails are used in promoting or operating a phony investment scheme, federal Postal Inspectors want to know about it. The postmaster in your community can put you in touch with them. Fraud involving any form of interstate commerce is also of interest to the Federal Bureau of Investigation. The nearest office should be listed in your phone directory. The listing on the inside back cover of this booklet includes headquarter addresses of the U.S. Postal Inspector in Charge and the FBI. Sure it can take some time, effort and possibly expense to thoroughly check out an investment proposal, but if you have any doubt about whether it's worth the trouble, talk with people who didn't and wish they had!

Finally, Don't Lose Touch with Your Money

It's important to continuously monitor your investments and to be alert for any telltale signs that things aren't quite the way they should be. The person who sold you the investment, for example, may suddenly become inaccessible--continuously tied up on the telephone or unwilling to return your calls, busy with clients, or out-of-town on important business matters. Or various documents or accounting statements you were promised don't arrive. Or information you do receive is vague or at variance from what you had been led to expect. Or money that was supposed to have been paid to you isn't received, and instead of checks you get excuses.

If you become suspicious or overly uncomfortable with an investment you've made--and if you are unable to totally resolve your concerns--the best thing you can do is try to get out of it. And do so as quickly as possible. That means demanding your money back, accompanied, if necessary, by threats to contact authorities.

You might or might not get it. The best you can hope for, if indeed there's fraud involved, is that the swindler may decide to refund your money rather than risk having you blow the whistle while he is still on the prowl for new investors. If that happens, consider yourself more fortunate than most. Be aware, if you do decide to try and get a refund, that the person who was smooth-talking enough to get your money in the first place will unleash all his skills to persuade you to leave it with him. No doubt, he will have some answer for all of your concerns. And some explanation for all apparent irregularities. And, no doubt you will be told that backing out now would be anything from contractually illegal to a terrible financial mistake. Swindlers figure that every once in a while some of their more fidgety investors simply have to be reconvinced. He may tell you that you are so close to making really big money, or the investment now looks even more profitable than originally expected.

Believe him at your own peril.

If you do insist on a refund of your investment, insist on it immediately Ask to pick it up yourself, or offer to pay the cost of having it sent by overnight mail or wired directly to your bank. Don't settle for "it will take a week or two" or "the check is in the mail." As everyone knows, checks seem to be lost more often than any other type of mail! If you don't get your investment back (and chances are you won't), or even if you do and still suspect a swindle, report it promptly to the appropriate authorities and regulatory officials. They may be able to conduct an investigation and, if called for, seek legal action to impound whatever funds the firm still has.

Bottom line, the unfortunate reality is that very few victims of investment fraud ever again see a cent of their money. It's also a reality that the business of swindling will continue to flourish as long as unwary investors provide prey for unscrupulous promoters. Hopefully, the information in this booklet--if heeded--will help to assure that a swindler's next fortune won't be made at the expense of your misfortune.
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Below is a list of names, addresses and phone numbers of organizations and agencies noted in this brochure:

Commodity Futures Trading Commission 
2033 K St., N.W. 
Washington, D.C. 20581 
202.254.6387 
Federal Bureau of Investigation 
Justice Department 
9th St. & Pennsylvania Ave., N.W. 
Washington, D.C. 20535 
202.234.3691 
Federal Trade Commission 
6th St. & Pennsylvania Ave., N.W. 
Washington, D.C. 20580 
202.326.3650 
Housing and Urban Development Department 
Interstate Land Sales Registration 
HUD Building 
451 7th St., S.W. Room 6262 
Washington, D.C. 20410-8000 
202.755.0502 
National Association of Securities Dealers 
1735 K St., N.W. 
Washington, D.C. 20006 
202.728.8044 
National Futures Association 
200 W. Madison, Suite 1600 
Chicago, IL 60606-3447 
Toll Free: 800.621.3570 
In IL: 800.572.9400 
Securities and Exchange Commission 
450 Fifth St., N.W. 
Washington, D.C. 20006 
202.728.8233 
United States Postal Service 
Chief Postal Inspector 
Room 3021 
Washington, D.C. 20260-2100 
202.268.4267 
Copyright * 1987 by National Futures Association