By Jason Kander, Missouri Secretary of State
Jefferson City, Mo. — Every day, I hear stories about hard-working Missourians who have lost money to scam artists—sometimes their entire life savings. Sadly, the stories I hear tend to have all-too-common themes: the Missourians were deceived by a salesperson who wasn’t registered to sell investments in Missouri, were pressured into hurrying a transaction for “the next big thing,” or entrusted their passwords to a scammer. Almost half of the victims are seniors.
My office works tirelessly to stop fraud and help make victims whole. It’s important to remember there are simple things you can do to protect your hard-earned savings from financial fraud. Calling my office’s Investor Protection Hotline at (800) 721-7996 or visiting www.MissouriSafeSavings.com before turning over your hard-earned money is an important step in protecting it. Our office can verify whether the investment product or the person selling it is registered to do so. When it comes to protecting your life’s savings, no amount of caution is too much.
To help identify red flags for potential scams, my office has compiled a short list of the most common types of fraud:
- Unregistered products/unlicensed salespeople: The offer of securities by an individual without a securities license should be a red alert for investors. Con artists also try to bypass state requirements to pitch unregistered investments with a promise of “limited or no risk” and high returns.
- Third Parties Managing Online Discount Brokerage Accounts: Missourians should be aware of offers to set up or “manage” online brokerage accounts by individuals claiming to be investment professionals. Do not share your user name or password with anyone.
- Investment Fads: Emerging investment opportunities such as digital currency, crowdfunding, oil and gas, or natural resource mining may sound appealing, but typically require an extremely high level of specific knowledge to be profitable.
- Promissory Notes: In an environment of low interest rates, the promise of high-interest-bearing promissory notes may be tempting to investors, especially seniors and others living on a fixed income. Promissory notes generally are used by companies to raise capital. Legitimate promissory notes are marketed almost exclusively to corporate investors with the resources to research thoroughly the companies issuing the notes and to determine whether the issuers have the capacity to pay the promised interest and principal. Most promissory notes must be registered as securities with the SEC and the states in which they are sold. Investors should be cautious about offers of promissory notes with a duration of nine months or less, which in some circumstances do not require registration. Short-term notes that appear to be exempt from securities registration have been the source of most – but not all – of the fraudulent activity involving promissory notes.
- Real Estate Investments: Potentially troublesome real estate-related investments include non-traded real estate investment trusts (REITs), timeshare resales, and brokered mortgage notes. These types of products often carry higher risk. For example, non-traded REITs are sold directly to investors and are not traded on exchanges (as are conventional REITs). Non-traded REITs can be risky and have limited liquidity, which may make them unsuitable for certain investors.
Ponzi Schemes: The premise is simple: pay early investors with money raised from later investors. The only people certain to make money are the promoters who set the Ponzi in motion.