Securities Bulletin

              SECURITIES bulletin
Each year, millions of dollars are
lost through investment fraud. In
many cases, these con artists use
the same schemes they have used
for years, just with different
packaging. If we are to protect
consumers from these
unscrupulous individuals, we must
heighten our awareness of what
the current “scam du jour” looks
like.
The North American Securities
Administrators Association
recently released its 2004 Top 10
List of Scams, Schemes and
Scandals. A few very old scams
are still around as well as some
with new twists to them. I
encourage investors to familiarize
themselves with these types of
scams so that they can better
protect themselves against fraud
and unscrupulous dealers. And if
you encounter any offer that
appears suspicious or too good
to be true, please call the
Securities Department before
committing your
hard-earned
dollars.
Jesse White
Secretary of State
Winter 2004
❶ Ponzi Schemes — Named for swindler Charles Ponzi, these schemes
promise high returns and use money from previous investors to pay new
investors. Inevitably, the schemes collapse. Con artists typically attribute
government intervention as the reason why new investors don’t get their
promised returns.
❷ Senior Investment Fraud — Older investors are being targeted with
increasingly complex investment scams involving unregistered securities,
promissory notes, charitable gift annuities, viatical settlements and Ponzi
schemes, all promising inflated returns.
❸ Promissory Notes — These short-term debt instruments often are sold by
independent insurance agents and issued by little-known or non-existent
companies promising high returns with little or no risk. These notes become
vehicles for fraud when the issuer has no intention or capability of delivering
the returns promised by the salesperson.
❹ Unscrupulous Brokers — Despite the stock market’s rebound in 2003,
there are still a high number of complaints from investors of brokers cutting
corners or resorting to outright fraud to fatten their wallets.
➎ Affinity Fraud — Scammers often use their victim’s religious or ethnic
identity to gain their trust and then steal their life savings.
❻ Insurance Agents/Other Unlicensed Securities Sellers — While most
independent insurance agents are honest professionals, many are lured by
high commissions into selling fraudulent or high-risk investments, such as
promissory notes, ATM and payphone investment contracts, and viatical
settlements.
❼ Prime Bank Schemes — The negative publicity of these schemes has caused
promoters to avoid explicitly referring to “Prime Banks.” Now, it is common to
underplay the role of banks by referring to these schemes as “risk-free,
guaranteed high-yield instruments” or something equally deceptive.
❽ Internet Fraud — From Web sites that cajole you to “Fire your Boss” and
start your own business at home to e-mail offers from individuals from Nigeria
or West African governments or business officials in need of help to deposit
large sums of money in overseas bank accounts, the Internet has become a
lucrative vehicle of fraud for con artists.
➒ Mutual Fund Business Practices — Although mutual funds play a
tremendous role in the wealth and savings of our nation, ongoing scandals
clearly demonstrate that some in the mutual fund industry are putting their
own interests ahead of America’s 95 million mutual fund shareholders.
➓ Variable Annuities — Investors are not being told about high surrender
charges and steep sales commissions agents often earn when they move
investments into variable annuities. Some investors also are misled with claims
of guaranteed returns when variable annuity returns actually are vulnerable to
the volatility of the stock market.
Top 10 Scams, Schemes & Scandals
IN
THIS
ISSUE
• TOP 10 SECURITIES SCAMS •
• HEDGE FUND OPERATOR GUILTY •
• ENFORCEMENT ADMINISTRATIVE ORDERS •
• INVESTOR EDUCATION •
• HARMENING NAMED EOM •
A NEWSLETTER OF THE ILLINOIS SECURITIES DEPARTMENT • SECRETARY OF STATE JESSE WHITE