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Top 10 Investor and Small Business Threats

The North American Securities Administrators Association (“NASAA”)—of which Florida’s Office of Financial Regulation is a member—is an organization made up of state securities regulation agencies. It endeavors to root out financial and securities fraud. And every year, the NASAA releases a helpful top 10 list of the “financial products and practices that threaten to trap unwary investors and small business owners.”

Private Offerings and Real Estate Investment Schemes

According to the NASAA, fraudulent private placements are the most commonly investigated schemes across the country. Private placements are securities offerings that are permitted to take place in absence of compliance with numerous federal regulations. They are limited offerings with, often, limited liquidity; and they are unsuitable for many investors. Fraudulent private placements are an even greater risk to the general public today, as passage of a post-recession federal law has relaxed how these investments are able to be broadly advertised.

Second on the NASAA’s list are real estate investment schemes. The organization warns about “too good to be true” investments related to real estate investment trusts or pooling arrangements that involve buying, renovating, and flipping distressed properties. The association notes that real estate investments are important to diversified portfolios and can be a legitimate source of income, but that investors should still make sure to properly understand what they are investing in.

Other “Persistent Investor Threats”

Both private placements and real estate investments are categorized by the NASAA as “persistent investor threats,” meaning they have long been and continue to be regularly undertaken by schemers and con artists.

Third, and also a persistent investor threat, are Ponzi schemes, which have always been attractive to innocent investors seeking high returns. Fourth, and related to Ponzi schemes, is so-called ‘affinity fraud.’ According to the NASAA, fraudsters (especially those marketing Ponzi schemes) often market their plots to members of organizations that are based on mutual trust and respect. They target elderly retirement groups, religious organizations, and the deaf community. They then pretend to be ‘one of them’ in order to gain the trust of the innocent investor.

The NASAA warns that “[i]nvestors should keep in mind that investment decisions should be made based on a careful evaluation of the underlying merits of the offer rather than common affiliations with the promoter.”

The list next describes scams involving self-directed IRAs, which allow for a broader range of investments than traditional IRAs. Fraudulent operators of self-directed IRAs use these vehicles to market their Ponzi schemes, fraudulent real estate investment trusts, or other types of fraudulent investment vehicles.

Sixth, the NASAA urges caution when investing in risky oil and gas drilling programs. While the prospect of high returns is enticing, some promoters have been found to hide the risks of these investments. Many of them are no substitute for responsible and diverse retirement planning and are unsuitable for investors not willing to lose their principal.

The remaining threats (proxy trading accounts, digital currency, capital-raising pitfalls, and unregulated third party service providers) are newer and, in some ways, more complex than the above. But investors should make sure to do their due diligence whenever investing.

If you believe that you have been the victim of securities fraud or some other kind of financial exploitation, please contact attorney Gregory Tendrich, P.A. to discuss your legal options today.

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