Washington State Department of Financial Institutions

Top 10 Investment Scams In Washington

The Washington State Department of Financial Institutions (DFI) has identified the following ten investment scams as the most likely to trap Washington investors. The list is in no order of prevalence or seriousness.

Before making any investment, DFI recommends that you check to make sure that both the investment and the salesperson is registered and licensed in Washington by calling 360-902-8700 or 1-877-RING DFI (746-4334).

Ponzi Schemes

In this scheme investors are told a cover story about how the business will earn money to allow it to pay high returns to its investors. In fact, the business is earning little or no money. Instead it repays early investors “profits” which are really money raised from new investors. Eventually the scheme collapses when the pool of new investor money runs dry. The scam artists often blame government intervention as the reason why new investors did not get their promised returns.

How to protect yourself:

Senior Fraud

Seniors are targeted by scam artists because they are “where the money is.” Volatile stock markets, low interest rates, rising health care costs, and increasing life expectancy, combine to create a perfect storm for investment fraud against senior investors. Older investors are being targeted with increasingly complex investment scams involving unregistered securities, promissory notes, charitable gift annuities, viatical settlements, and Ponzi schemes, all promising inflated returns. To learn more, visit NASAA's Senior Investor Resource Center at http://nasaa.org/Investor_Education/Senior_Investor_Resource_Center/.

How to protect yourself:

Promissory Notes

A long-time member of the Top 10 list, these short-term debt instruments often are issued by little known or non-existent companies promising high returns — upwards of fifteen percent monthly — with little or no risk. When interest rates are low, investors often are lured by the higher, fixed returns that promissory notes offer. These notes, however, can become vehicles for fraud when the issuer of the note has no intention or capability of ever delivering the returns promised by the sales person.

How to protect yourself:

Unscrupulous Brokers

While many investors find their stockbroker’s assistance helpful, they should also take precautions and educate themselves to detect any problems that might occur.

How to protect yourself:

Before you choose a broker:

Once you have established a relationship with a broker:

Affinity Fraud

Con artists know that it’s only human nature for us to trust people who are like us. That's why scammers often use a victim's religious or ethnic identity to gain the victim’s trust and then steal his or her life savings. No group seems to be immune from fraud.

How to protect yourself:

Just because others you know have invested does not mean that an investment is right for you.

Unlicensed Securities Sellers

Fraudulent and high-risk investments, such as promissory notes, oil and gas deals, gold or mining stock, and viatical settlements continue to be sold by unlicensed individuals. Scam artists continue to entice independent sales agents into selling investments they may know little about. The person running the scam instructs the independent sales force — sometimes investment advisers, insurance agents or accountants — to promise high returns with little or no risk.

How to protect yourself:

Prime Bank Schemes

Another perennial favorite of con artists who promise investors triple-digit returns through access to the investment portfolios of the world’s elite or “prime” banks. Now it is common to avoid the term “Prime Bank” altogether and underplay the role of banks by referring to these schemes as “risk free guaranteed high yield instruments” or something equally deceptive. These “High Yield Programs” often reference the use of “treasury securities,” ”letters of credit” or similar methods. Scammers often use the allure of “tax free” money by using “offshore accounts” to entice investors.

How to protect yourself:

Internet Fraud

Scams using the Internet have rapidly increased as scam artists have found that it is a cheap and anonymous way to reach their potential victims. Most Internet scams are not new, but simply done online rather than by mail, telephone or in person. Spam e-mails, chat rooms and online investment “newsletters” often promote stocks with hype and false information in the hope that unsuspecting investors looking to make a “quick profit” will buy and drive up the price of the stock. Unfortunately, it is the promoters of the hype and false info who are able to sell their shares and leave investors “holding the empty bag” when the price stock crashes. Internet scam artists can be difficult to identify and may be located out of the country, beyond the reach of U.S. laws. Investors should ignore e-mail offers from individuals representing themselves as Nigerian or West African government, business officials or anyone in need of help to deposit large sums of money in overseas bank accounts. Don't be dot.conned.

How to protect yourself:

Free Lunches and Dinners

Many seniors are being targeted with dubious free lunch or dinner seminars advertised as "educational." A yearlong study of free-meal investment seminars by state securities regulators across the nation highlighted the abusive tactics sometimes employed by seminar sponsors. Out of 110 supposedly "educational" seminars examined, all were actually sales presentations. Half of the seminars featured exaggerated or misleading claims about the performance of products being offered. Thirteen percent of the seminars were completely fraudulent.

How to protect yourself:

Telemarketing Fraud

Hundreds of "boiler rooms" or high-pressure telephone sales operations peddle illegal or fraudulent investment products nationwide. These individuals will gladly accept the life savings of elderly persons who will never be able to recoup their loss. Many victims must return to the work force instead of enjoying the comfortable retirement they deserve, and the stress of their losses can have a deep impact on their emotional and physical well-being.

How to protect yourself:

Don’t let your politeness make you a victim:

[Top]

How helpful was the information on this page?
Very helpful 5 4 3 2 1 Not helpful



For questions or comments that require a response,
please use our feedback form.

DFI