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While the vast majority of persons in the futures industry and other sectors of the investment community serve the investing public conscientiously and ethically, there are inevitably those few who seek to exploit the trust which others have labored so hard to earn.

Americans are investors. We purchase stocks and bonds, contribute to savings programs, own real estate, participate in futures and options markets, acquire collectibles, provide start-up capital for new business ventures, buy franchises, and the list goes on. The strength of our economy is in large measure the product of our combined investments.

Perhaps more so than any people in the world, we enjoy an ever-expanding variety of investments to choose from, coupled with the freedom to make our own investment decisions. It's our money and we can invest it as we wish.

Unfortunately, some unscrupulous promoters abuse our freedom to choose by concocting investment schemes that have zero possibility of making money for anyone other than themselves. Such persons promise investment rewards they cannot possibly deliver and have no intention of delivering. They are swindlers.

Many of them are very good at it. Their annual take through lying and deceit is in the billions of dollars. If one estimate of $10 billion a year lost to investment fraud is accurate, that's more money than the combined annual profits of the nation's three major automakers! Some say even that estimate may be too low.

Successful investment swindlers use every trick in the book, and some that aren't even recorded, to convince you that none of the descriptions and precautions in the following pages apply to them. After all, they are offering you a once-in-a-lifetime opportunity to make a lot of money quickly and you do trust them, don't you? As will be seen, some of their methods of gaining your trust are truly ingenious.


Who are the Investment Swindlers?

They are a faceless voice on a telephone. Or a friend of a friend. They may perform surgery on their victims' savings from a dingy back office or boiler-room or from an opulent suite in the new bank building. They may wear three-piece suits or they may wear hard hats. They may have no apparent connection to the investment business or they may have an alphabet-soup of impressive letters following their names. They may be glib and fast-talking or so seemingly shy and soft-spoken that you feel almost compelled to force your money on them.

The first rule of protecting yourself from an investment swindle is thus to rid yourself of any notions you might have as to what an investment swindler looks like or sounds like. Indeed, some swindlers don't start out to be swindlers. There are case histories in which individuals who held positions of trust and esteem; accountants, attorneys, bona fide investment brokers and even doctors-have sacrificed their ethics for the fast buck of running an investment scam.

In still other cases, investment programs that began with legitimate intentions went sour through happenstance or poor management--leading the promoter to mishandle or abscond with investors' capital. Whether an investment is planned as a scam or simply becomes one, the result is the same.

This is why, as we will discuss, protecting your savings against fraud involves at least three steps: Carefully check out the person and firm you would be dealing with; take a close and cautious look at the investment offer itself; and continue to monitor any investment that you decide to make. No one of these precautions alone may be sufficient.

Who are the Victims of Investment Fraud?

If you are absolutely certain it could never be you, the investment swindler starts with a big advantage. Investment fraud generally happens to people who think it couldn't happen to them.

Just as there is no typical profile for swindlers, neither is there one for their victims. While some scams target persons who are known or thought to have deep pockets, most swindlers take the attitude that everyone's money spends the same. It simply takes more small investors to fund a large fraud. In fact, some swindlers deliberately seek out families that may have limited means or financial difficulties--figuring such persons may be particularly receptive to a proposal that offers fast and large profits. A favorite pitch is that small investors can become rich only if they learn and employ the investment strategies used by wealthy persons. Naturally, the swindler will teach them!

How Investment Swindlers Find (or Attract) Their Victims

Swindlers attempt to mimic the sales approaches of legitimate investment firms and salespersons. Thus, the fact that someone may contact you in a particular way--by phone, mail, or even through a referral--should not in itself be viewed as an indication that the investment is or isn't shady. Many totally reputable firms also use the same methods to effectively and economically identify individuals who may have an interest in their investment products and services.

So-called telephone boiler-rooms remain a favorite way for swindlers and their sales squads to quickly contact large numbers of potential investors. Even if a swindler has to make 100 or 200 phone calls to find a mooch (one of the terms swindlers use for their victims), he figures that the opportunity to pocket thousands of dollars of someone's savings is still good pay for the time and cost involved.

Some sellers of fraudulent investment deals buy bona fide mailing lists--names and addresses of persons who, for example, subscribe to a particular investment-related publication, who have responded to previous direct mail offers, or who have other characteristics that swindlers look for. In the hope of avoiding notice by postal authorities, mail order swindlers may not make a direct or immediate pitch for your money. Rather, they often seek to entice you to write or phone for more information. Then comes a call from the salesperson or the person who closes the deal. Some may phone even if you didn't respond to the mailing.

A newspaper or magazine ad may offer (or at least hint at) profit opportunities far more attractive than available through conventional investments. Once you've taken the bait, the swindler will then attempt to "set the hook." Even though investment crooks know that regulatory agencies regularly monitor ads in major publications, some nevertheless use such publications in the hope of being able to hit-and-run before an investigator shows up. Others advertise in narrowly circulated publications they think regulators may be less likely to see.

Techniques Investment Swindlers Use

Their techniques are as varied as their methods of establishing contact. If there is a common denominator, however, it is their ability to be convincing. The skills that make them successful are essentially the same skills that enable any good salesperson to be successful.

But swindlers have a decided advantage: They don't have to make good on their promises. In the absence of this responsibility, they have no reluctance to promise whatever it takes to persuade you to part with your money.


Questions That Can Turn Off an Investment Swindler

The first line of defense against investment fraud is your inalienable right to ask questions and--until you get the right answers--to say "No." And mean no. Not surprisingly, this is usually an investment swindler's first point of attack. To keep you from asking questions, he asks them! Invariably, the questions have "yes" answers, such as "You would at least be interested in hearing about such a fantastic investment opportunity, wouldn't you?" or "You would like to make a large amount of money in a short period of time with little or no risk, right?"



1. Where did you get my name?

If the response is that you were chosen from a "select list of intelligent and prudent investors," that select list may be the telephone directory, or a purchased list of persons who've bought certain types of books, subscribed to particular magazines, or responded to newspaper ads. If you have made ill-advised investments in the past, you can be pretty sure your name is on someone's alumni list. It's the list swindlers prize most: Easy preys who are eager to recoup (but are doomed to repeat) their earlier losses.

2. Can you send me a written explanation of your investment so I can consider it at my leisure?

For someone peddling fraudulent investments, that can be a double turnoff. For one thing, most crooks are reluctant to put anything in writing that might cause them to run afoul of postal authorities or provide material that, at some point, might become evidence in a fraud trial. Secondly, swindlers don't want you to do anything at your leisure. They want your money now.


3. Would you mind explaining your investment proposal to some third party, such as my attorney, accountant, investment advisor or banker?

If the answer goes something along the lines of "normally, I'd be glad to, but there isn't time for that," or if the salesman snaps back by asking "can't you make your own investment decisions?" these are virtually certain clues that your final answer should be an emphatic "No."

4. Can you give me the names of your firm's principals and officers?

Although some persons who establish and operate dishonest firms change their own names as often as they change their firms' names, even the hint that you are the kind of investor who checks into things like that can be a fast turn-off for a swindler.

5. Can you provide references?

Not just another list of other investors who supposedly became fabulously wealthy (the names you get may be the salesman's boss or someone sitting at the next phone), but reputable and reliable recommendations such as a bank or well-known brokerage firm that you can easily contact.

6. Are the investments you are offering traded on a regulated exchange, such as a securities or futures exchange?

Some bona fide investments are and some aren't, but fraudulent investments never are. Exchanges have strict rules designed to assure fair dealing and competitive price determination. There are also in-place mechanisms to provide for rule enforcement and to impose severe sanctions against those who fail to observe the rules.

7. How long has your company been in business?

In any kind of business activity, there can be advantages to dealing with a known, established company. This isn't to say that new businesses aren't starting up all the time or that the vast majorities aren’t perfectly reputable. But if you find yourself talking with someone who doesn't seem to have a past, it can be worthwhile to find out why. Many swindlers have been running scams for years but understandably aren't anxious to talk about it.

8. What has your track record been?

Before you accept a salesman's assurance that he can make money for you, you have the right to know what his performance has been in making money for others. And ask to have the information (if there is any) in writing. Boasting over the phone is one thing; putting it down on paper is quite another. In any case, even if you are able to obtain a documented performance record, don't lose sight of the fact that past performance in itself provides no assurance of future performance.

9. When and where can I meet with you or with another representative of your firm?

Chances are a crooked operator--particularly if he is operating out of a telephone boiler-room--isn't going to take
the time to visit with you and even more certainly doesn't want you to see his place of business.

10. Where, exactly, will my money be? And what type of regular accounting statements do you provide?

In many investment areas, such as futures trading, firms are required to maintain their customers' funds in segregated accounts at all times. Any mingling of investors' funds with those of the firm or its principals is prohibited. You might also want to find out what, if any, routine outside audits the firm's account records are subject to.