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How to Avoid Investing Scams

By Sheryl Nance-Nash, DailyFinance


By DailyFinance ( DailyFinance) -- Call it investor schizophrenia: On the one hand, the volatile stock market has some investors looking for "safety;" and on the other, stock market losses have led some to desperately seek fat returns elsewhere. Either way, you could wind up in trouble, because scam artists are ready to prey on the desires of both.

"It's not a matter of simply being greedy, but people are worried they won't have the assets they need when they retire, there is a certain amount of fear and desperation," says Michael Byrne, chief counsel of the Pennsylvania Securities Commission. Unfortunately, he says there is no shortage of scammers who "don't mind nailing widows and orphans."

It's estimated that $40 billion is lost per year to investment fraud, says Bob Webster, director of communications of the North American Securities Administrators Association (NASAA). Seniors are often on top of the target list.

The NASAA recently released its report, 2011 Top Investor Traps and Threats. Given the breadth and depth of the schemes it profiles, you really should be looking over your shoulder. That's not paranoia: It's prudence.

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Know Where Fraudsters Are Likely to Lurk

"Fraud is always there," says Webster. "Con artists follow the headlines and tailor their pitches to exploit common fears and popular trends."

"Investment offerings involving distressed real estate have been on the rise following the collapse of the real estate bubble. While many legitimate investment offerings are tied to real estate, investment pools targeting distressed real estate have become increasingly popular with con artists as well as investors," the NASAA's website reports. "Investments in properties that are bank-owned, in foreclosure, pending short sales or otherwise in distress inevitably carry substantial risks and should be evaluated carefully. Just like other securities, interests in real estate ventures also must be registered with state securities regulators."

"Everybody thinks that a load of property can be bought for next to nothing and that they can just flip the house. People are being told to put up money for distressed properties, but what's not being discussed is that there isn't a lot of buying now," says Byrne. "At least when you own stocks and bonds, you can sell them and limit your loss, but you don't have that kind of control with a hard asset like a house," says Byrne.

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