OKLAHOMA DEPARTMENT OF SECURITIES
Oklahoma City, Oklahoma
 
PRESS RELEASE
Oklahoma Department of Securities ANNOUNCES ANNUAL TOP INVESTOR THREATS 
 
For Immediate Release
Thursday, December 14, 2017
 
Contact: Irving Faught, Administrator
  Oklahoma Securities Commission
  405-280-7700
 
Oklahoma City/////  The Oklahoma Department of Securities today released the National Securities Administrators Association’s (NASAA) annual list of top investor threats. All investors are advised to use caution when approached with any unsolicited investment opportunities.

“All investments involve a degree of risk. Investors can help protect themselves by taking time to research both the investment product and the person selling it. It’s best to learn before you get burned,” Irving Faught the Securities Department ADMINISTRATOR said. “Protect yourself from investment fraud by learning about these schemes before you become a victim,” he said.

The top threats were determined by surveying members of NASAA, of which the Oklahoma Securities Department is a member, to identify the most frequently identified source of current national investor complaints or investigations. The following were cited most often:

PROMISSORY NOTES: A promissory note is a written promise to pay (or repay) a specified sum of money at a stated time in the future or upon demand. Companies may sell promissory notes to raise capital, and usually offer them only to sophisticated or institutional investors. Promissory notes from legitimate issuers can provide reasonable investment returns at an acceptable level of risk. However, there are a high number of promissory note frauds. Investors should be cautious about promissory notes with durations of nine months or less, as these notes generally do not require federal or state securities registration. Such short-term notes have been the source of most (though not all) of the fraudulent activity involving promissory notes identified by securities regulators.

REAL ESTATE INVESTMENTS: The promise of earning quick money through investments related to real estate continues to lure investors. Investors should be cautious about real estate investment seminars, especially those marketed aggressively as an alternative to more traditional retirement planning strategies involving stocks, bonds and mutual funds. Two of the most popular current investment pitches at these seminars involve so-called “hard-money lending” and “property flipping.” Hard-money lending is a term used to refer to real estate investments financed through means other than traditional bank borrowing, that offer the opportunity to earn unusually high rates of return. Property flipping is the practice of purchasing distressed real estate, refurbishing it, and then immediately re-selling it in hopes of earning a profit. Property flipping financed through borrowed funds or outside investments can be done entirely lawfully, but it can also be a source for fraud by false statements as to value and saleability.

PONZI/PYRAMID SCHEMES: A Ponzi scheme is a ploy wherein earlier investors are repaid through the funds provided by subsequent investors. In a Ponzi scheme, the underlying investment claims are usually entirely fictional; very few, if any, actual physical assets or investments generally exist. As the number of total investors grows and the supply of potential new investors dwindles, there is not enough money to pay off promised returns and cover investors who try to cash out. Similarly, a pyramid scheme is a fraudulent multi-level marketing strategy whereby investors earn potential returns by recruiting more and more other investors. Multi-level marketing strategies are not intrinsically fraudulent, and there are many legitimate multi-level marketing companies offering various consumer products and services. What makes a multi-level marketing strategy into a fraudulent pyramid scheme is the lack of a genuine underlying investment enterprise or product upon which the strategy can hope to be sustained.

OIL & GAS INVESTMENTS: Many oil and gas investment opportunities, while involving varying degrees of risks to the investor, are legitimate in their marketing and responsible in their operations. However, as in many other investment opportunities, it is not unusual for unscrupulous promoters to attempt to take advantage of investors by engaging in fraudulent practices. These investments may be marketed as safe and secure, high-yield investments and therefore attract investors, such as seniors, who are interested in safety of principal with some income-producing potential. Oil and gas ventures are typically highly speculative, though, and may not be suitable for many investors.

AFFINITY FRAUD: In an affinity fraud, a con artist uses some sort of connection with the victim as the basis for the fraud. Affinity frauds may involve people who attend the same church, belong to the same club or association, or share a common hobby. The con artist knows it is often easier for victims to trust someone who seems to be like them. And once trust is gained, it is easier to exploit that trust to perpetrate a scam. Once a victim realizes that he or she has been scammed, too often the response is not to notify the authorities but instead to try (usually unsuccessfully) to solve problems within the group. Affinity fraud can not only be financially devastating to the victims, but often has the perverse effect of causing victims to lose trust in the group or affiliation that was previously a source of comfort or support. The psychological damage can be just as harmful as the financial damage.

The Department offers a wealth of free investor education materials and can help investors research the background of those selling or advising the purchase of an investment. Mr. Faught suggests that investors go to the following web sites for further information: investedok.org and securities.ok.gov.
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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