Too good to be true? Probably.
According to state and federal regulators, volatile stock markets, record low interest rates, rising health care costs, increasing life expectancy, and even the devastating aftermath of hurricane Katrina have combined to create a “perfect storm” for investment fraud. (No pun intended.)
Buyers Beware
In the past, fraudsters acted alone, scammed their victims in rapid succession, and then beat it to an undisclosed offshore location until caught. Not anymore. These days, con artists masquerade as reputable lawyers, bankers, and fund managers and are recruiting thousands of legitimate advisors to do their dirty work. Insurance agents in particular have met with a tidal wave of recent regulatory actions recently by promoting a variety of fraudulent investments to their clients.
“They (con artists) pick insurance agents because they have intimate knowledge of their clients’ finances, have the trust of their customers, and are often trusted members of their communities,” says James Quiggle, director of communications at the Coalition Against Insurance Fraud, a Washington DC nonprofit education organization.
Therefore, Consumer Reports Online recently warned their vast readership that “investment frauds perpetrated by insurance agents have been responsible for the disappearance of billions of dollars from people’s retirement plans…”
Advisors Beware
The following are the top 5 scams that insurance and financial advisors are currently being recruited to sell:
- Promissory Note Scams – Legitimate IOUs are usually sold to sophisticated or corporate investors, NOT the general public. These official-looking certificates seem to offer safety along with a higher-than-market rate of return, but are not worth the paper they’re printed on.
- Prime Bank Note Scams – Fraudsters tell advisors that they have special access to programs that otherwise would be reserved for top financiers on Wall Street. Despite having credible sounding names such as “Bank Debentures”, “Bank Guarantees”, “Offshore Trading Program”, and “World Bank Debt Obligations”, these supposed “investments” simply do not exist.
- Oil and Gas Scams - These scams always surface when headlines predict oil shortages or a rise in natural gas prices. Unscrupulous promoters dummy-up phony paper and try to sell interests in non-existent or non-producing oil wells.
- Equipment Leasing Scams - Here investors supposedly buy business equipment, and then lease it back to the selling company. Thousands of advisors have been recruited to sell interests in pay phones, ATMs, Internet kiosks, and in the areas of disaster relief, construction equipment.
- Disaster Relief Scams - Con artists tug at the heartstrings of investors and offer phony bonds to finance the reconstruction of disaster areas.
Most insurance agents and securities brokers are honest and competent professionals, but a growing number have yielded to the recruiting efforts of con artists. Why? Huge commissions. Con artists with bogus investments to sell have capitalized on the advisors’ thirst for extra income, and the 15-40% commissions that advisors can earn temporarily blinds them to the nightmare of future problems, which includes possible jail time.
So exercise caution and do not allow high commissions or a so-called “great opportunity” to lure you into selling fraudulent investments. Protect your fine reputation and do not place your career (and your freedom) in jeopardy. If you are contacted by anyone to offer a questionable financial product to your book of clients, perform your own due diligence and contact your state and federal regulatory organizations. For links and contact information, go to the National Ethics Bureau website at ethicscheck.com
Published in: Senior Market Advisor Magazine - November, 2005 — SMA Website
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