Avoiding Investment Pitfalls

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Avoiding Investment Pitfalls. Texas State Securities Board Denise Voigt Crawford Securities Commissioner. Introduction. Investing requires serious planning and diligent investigation prior to investing Seniors are particularly at risk for investment fraud - PowerPoint PPT Presentation

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  • Avoiding Investment Pitfalls

    Texas State Securities Board

    Denise Voigt CrawfordSecurities Commissioner

  • IntroductionInvesting requires serious planning and diligent investigation prior to investingSeniors are particularly at risk for investment fraudIt is important to know what questions to ask and to whom to ask them prior to investing

  • Topics of DiscussionChecking out the investment professionalInvestigating the investment productCurrent trendsWarning signs to be on the lookout forAsking the tough questionsWe will use scenarios to illustrate several securities solicitations

  • ScenariosThe scenarios used in this presentation are for educational purposes. Fictional names have been used for individuals, entities, and programs. Any similarity between the scenarios and any real individual, entity, or program is purely coincidental.

  • Checking out the investment professionalBackground checks:

    The State Securities Board is the best source for records. Call us for information at 806-762-8010 or by e-mail at records@ssb.state.tx.us

  • Checking out the investment professionalAlternatively, you may go directly to national databases online:

    Central Registration Depository (CRD) www.nasd.com Investment Advisers Public Disclosure (IAPD)www.adviserinfo.sec.gov

  • Checking out the investment professionalRemember, just because someone is professionally licensed in one field does not mean they are registered to offer and sell securitiesInsurance SalesmenEstate PlannersOther professionals

  • Checking out the investment professionalQuestions to ask include:Is the representative registered?For how long?Any regulatory or criminal actions against them?Any customer complaints?

  • Finding out about investment productsSecurities should be registered unless being offered pursuant to an exemptionPublic offerings/private offeringsContact the SSB Registration DivisionIf not registered, ask those offering the program why they are not registered

  • Current TrendsBe cautious about secret offerings and products you have never heard ofHeadlines breed the latest in fraudulent schemes:Oil and GasReal EstateBird Flu

  • Current TrendsTactics employedPreying on insecurityReverse mortgagesIRA accountsLiving trusts

  • Scenario # 1Telephone CallJohnnyOil well drilling projectTax benefits

  • Scenario # 1 continuedYou know how high the price of gas is nowadaysWorking Interests in the SSB #1A well in Kleberg County, Texas$50,000 a unitUnit= 2% WI

  • Scenario # 1 continuedExpecting to yield 500 barrels of oil a dayWhen the price of oil doubles, so will your profitUsing high tech drilling techniques other oil companies dont use

  • Scenario # 1 continuedAfter theyve finished talking and its finally your turn to talk, what questions should you ask?

  • Warning signs High returns/low riskUnregistered product/unregistered agentWont provide audited financial statementsDoes not explain how the program is supposed to generate returns for the investor (expects that the high returns will be enough to lure the investor)

  • Warning signs Past violations with regulatory agenciesPressure tactics in sales pitchDocuments vary from verbal representationProgram relies heavily on the abilities of the principals without disclosing much about the principals abilities

  • Warning signs Evades questions asked by investorsWont leave advertising materials or copy of contract with the investorInsists decisions be made quickly

  • Scenario # 2Insurance agent who sold you long term care insurance has something else to offerIt will provide monthly income at 15.8% and is low riskAre you interested?

  • Scenario # 2 continuedThe program works like this:You buy equipment, consisting of a computer game terminal to be placed in shopping malls, from GameEquipment.com You lease the equipment back to a company called WeeLease.com

  • Scenario # 3 continuedWeeLease manages the equipment, collects the payments for the price of using the equipment and sends you a monthly check equivalent to 15.8% annual returns

  • Scenario # 3 continuedThis is not a securityIts been registered as a business opportunity with the State of TexasIts not a security because you have the option to run the business yourself (although no one ever does)A special fund has been created to guarantee return of principal

  • Scenario # 2 continuedWhen he comes to your home with the contract for the opportunity, what questions will you ask?

  • Ask the tough questions

    Many people are afraid to ask tough questions out of fear of being rudeInvestors have the right to know details about the program they are investing in

  • Ask the tough questionsWhat is the name of the company?How long has it been in business?Are audited financial statements available?What is the operating history of the company?

  • Ask the tough questionsWho are the principals of the company?Have any of the principals:Ever filed for bankruptcy?Been party to a law suit?Been indicted/convicted on criminal charges?Been the subject of a regulatory action?

  • Ask the tough questionsIs the person offering the program an officer or director of the company?Are they registered to offer and sell securities in Texas?

  • Ask the tough questionsWhat is the rate of return?Can I liquidate my investment should the need arise?What will my funds be used for?How will this generate returns for me?What risks are associated with the investment?

  • Scenario # 3Local Business ManIn business 22 yearsActive in the community and has a good reputation

  • Scenario #3 continuedOffers limited partnership interest in a real estate ventureProvides 13% annual returnsMay receive monthly, quarterly, or annual payments

  • Scenario # 3 continuedThe returns will be generated by building luxury homes in a local community and selling them at a low price so more people can afford themInvestor funds are used to purchase materials

  • Scenario # 3 continuedThe minimum to invest is $25,000Investors receive the first payment within 30 days of wiring their funds to the head of the companyBusiness Man can provide references

  • Scenario # 3 continuedWhen he telephones you to check your interest in the program, what questions will you ask?

  • Answers to Investor Awareness Quiz1.A retired teacher in West Texas is unlikely to be the victim of investment fraud.

    A:FALSE

    2.An investment that is marketed as paying high returns with little or no risk is a good place to put ones money.

    A:FALSE

  • Answers to Investor Awareness Quiz3.A person who calls him- or herself a senior advisor or estate planning professional is licensed and qualified to sell securities to senior citizens.

    A:FALSE

    4.Investments made through a self-directed IRA custodian are unlikely to be fraudulent.

    A:FALSE

  • Answers to Investor Awareness Quiz5.Victims of investment fraud will get their money back from the government, if not from the perpetrator.

    A:FALSE

    6.No one has as much incentive to look after your financial well-being as you do.

    A:TRUE

  • Q & A

  • Contact the SSBIf you suspect that you or someone you know may be the victim of an investment scam, please contact the State Securities Board

  • Contact the SSBwww.ssb.state.tx.us

    512-305-8300 (Main)512-305-8332 (Registration)512-305-8392 (Enforcement)888-663-0009 (Toll Free)

  • Texas State Securities BoardAustin 512-305-8300Corpus Christi 361-887-1085Dallas 214-630-8681Houston 713-426-0336Lubbock 806-762-8010San Antonio 210-886-0153Investigate Before You Invest