IT'S IN TIMES like these that investors become more vulnerable than usual to investment scams.
The volatile stock market and lower interest rates make investors susceptible to con artists' promises of high returns with little or no risk.
Investors frequently have their guard down, too, because they became accustomed to healthy double-digit returns during the 1990s bull market, said Deborah Bortner, president of the North American Securities Administrators Association.
"When they hear you can make 15 percent guaranteed, they are not too surprised," she said. "Ten years ago maybe, they would have said, `That's too good to be true.'"
Often, the target is older investors who may have hefty nest eggs or are anxious to boost their fixed income. And some older Americans are more likely to listen to a scam artist's pitch because they are lonely, too trusting or too polite, experts said.
"They grew up in an age when you weren't suspicious about your neighbor and people who came to the door. You didn't hang up the phone on somebody," said Sue Ward, secretary of Maryland's Department of Aging.
The securities administrators group recently released the top 10 investment scams that regulators are fighting nationwide.
New to the annual list are "callable" certificates of deposit sold to older investors and schemes to invest in pay phones and ATMs.
Callable CDs are generally sold through large, legitimate firms, but problems occur when sellers don't reveal all the risks or restrictions, particularly to elderly investors, Bortner said. The CDs generally mature in 10 to 20 years, but can be redeemed after a year, Bortner said.
What investors aren't told is that it's the bank - not the investor - that can cash in the CDs early, she said. When investors try to do so, they may lose up to 25 percent of their principal.
With pay phone and ATM scams, investors are told they can get annual or monthly returns of up to 15 percent by investing in coin-operated telephones or ATMs. Regulators say these could be Ponzi scams, where money from new investors is used to pay off earlier investors until the scam can't be sustained anymore.
The No. 1 problem, though, is unlicensed individuals selling securities.
Increasingly, these individuals are independent life insurance agents who have seen sales of life insurance products fall in recent years and are lured by high commissions into selling fraudulent or exotic investments, Bortner said. Many times, agents don't realize that the products they are selling are fraudulent, she said.
