Oklahoma City, Oklahoma
For Immediate Release
Monday, June 16, 2008
Contact: Irving Faught, Administrator
  Oklahoma Department of Securities
Oklahoma City/////  As summer approaches, the Oklahoma Securities Commission (OSC) warns that scam artists are using every trick under the sun to separate unsuspecting investors from their hard-earned dollars. OSC Administrator, Irving Faught, cautions investors to screen themselves from hot energy-related frauds, speculative real estate promotions, unsolicited invitations from new online “friends,” and complex investment products that fail to offer clear disclosures of their risks and costs.

“Con artists tend to follow the news headlines in an effort to lend creditability to their schemes. The recent turmoil in the credit and real estate markets has led some investors to seek higher returns in non-traditional, speculative investments – a proven feeding ground for con artists,” said Faught, “Investors today are facing enough challenges without having to worry about being conned and swindled by get-rich schemes.”

The substantial increase in energy costs has made scams related to energy more prevalent, “We are seeing not only shady oil and gas investments, but also scams that promise the development of new technologies to increase the efficiency of energy consumption or to extract energy from sources previously thought too expensive to develop,” Faught said.

As the housing market continues to reel from the sub-prime debacle, Faught cautioned that schemes promising large returns from various types of real estate-related investments also are increasing. “Some real estate alternatives may actually be worthless real estate investments that promoters are trying to dump off to unsuspecting retail investors,” Faught said. He also warned that reverse mortgages pose several risks: they may not be appropriate for a given investor; if the homeowner chooses the option of accepting the funds all at once in a lump sum it may create a sudden supply of cash that may be diverted into bad investments; and they enable promoters to gain access to an investor’s entire financial profile. Such disclosure of other assets can lead to yet more scams—and losses.

In a new twist on affinity and online investment fraud, con artists are trying to use social and contextual networking websites, like Facebook, MySpace and Second Life, to lure people to meetings that may promote fraudulent or unsuitable investment products. “In social networking websites con artists can take advantage of the fact people freely share information with both their real and ‘virtual’ friends by posting it to their profile.” Faught said. “Communication tools provided by some social networking websites make it easy to advertise and promote investment scams to a wide audience for free.” Investors need to do their own research before making an investment and should not simply rely on ‘expert’ advice given online or at a seminar or meeting.

The recent investigations related to auction-rate securities (ARS) have reinforced that investors should remain cautious when pitched complex investment products. The auction rate securities collapse is an example of the fact there is no investment without risk. This little known security was not just sold to rich investors but also to investors who were unsuitable because of the ignored liquidity risks and their inability to absorb the losses related to not having cash when they needed it. Wall Street Banks created, ran and then bailed on the market amid the recent credit crisis. The liquidity risk was not dealt with properly at the point of sale.

Also investors should be careful when advised to concentrate their investments too heavily in one investment product. “It is best to avoid investment pitches that would lead you to put all of your eggs in one basket, especially if it’s a basket you don’t fully understand,” Faught said.

In addition to these trends, a number of familiar investment traps are likely to persist for the foreseeable future. Prominent among these is the sale of complex hybrid financial products, such as variable and equity-indexed annuities, to investors for whom they are not suitable—typically seniors. These products frequently contain features so complicated that even licensed financial professionals are not adequately trained to understand them. Also investors maybe enticed by fraudulent private securities offerings, pump and dump schemes, sale and leaseback contracts, prime bank schemes, and promissory notes.

“The key to avoid getting burned by any investment is to make sure you understand the product being offered and thoroughly investigate the background and credentials of the salesperson. “Remember, if it sounds too good to be true, it usually is,” Faught said.

To learn more about these investor traps, please visit the Web site of Invest Ed™, the voice of investor education in Oklahoma, at and the NASAA Fraud Center on the NASAA website at www.nasaa.org.
This press release, and related information, is available on the Department of Securities' web site at www.securities.ok.gov, by phone at 405/280-7700, or in writing at:  Oklahoma Department of Securities, 204 North Robinson, Suite 400, Oklahoma City, OK 73102