NASAA Warns Against Crowdfunding, Investment-for-Visa Scams And Other Investment Fraud

The North American Securities Administrators Association has issued its yearly list of financial products and practices that it believes pose among the greatest investment danger to investors. The 10 on this year’s list, which was put together by securities regulators in the association’s Enforcement Section are:

1) Gold and precious metals 2) Promissory notes 3) Reg D/Rule 506 private offerings 4) High risk gas and oil drilling programs 5) Real estate investment schemes (REITS)
6) Salesmen without licenses who make recommendations related to liquidation 7) Internet offers involving crowdfunding 8) EB-5 Investment-for-Visa scams 9) Investment advisers engaging in practices and giving advice that is not appropriate for an investor 10) Scammers attempting to hide their fraud schemes using self-directed IRAs
The first six on the list are considered persistent threats, while the last four are newer ones. For example, although crowdfunding, which involves asking crowds to donate a specific amount of money to a certain cause in return for certain rewards, is not a new way to raise money ,with the enactment of the JOBS Act (which lets speculative, small companies approach investors to sell them securities) some 1,600 to 1,700 websites related to crowdfunding have cropped up. Granted, there are surely many legitimate startups using this method to sell to investors. However, Crain’s New York Business believes that there are undoubtedly scammers hidden among these companies.

It doesn’t help that the regulations for crowdfunding currently don’t exist. Already, Massachusetts’ securities regulator has charged one resident over a crowdfunding scheme to defraud at least 20 investors of $153K. The fraudster is accused of using his company site, Facebook, and Twitter to raise the funds.

As for Self-directed IRAs, a fraudster can easily create bogus business for this type of IRA, whether to promote a Ponzi scam or another type of investment fraud. His/her job is made easier because self-directed IRA trustees and custodians owe investors limited duties. It doesn’t help that investors are left with the false impression of being involved in something legitimate while their money is supposedly protected against loss.

With EB-5 investment-for visa scams, foreigners are offered the opportunity to obtain a US visa under the Immigrant Investor Program in exchange for investing at least $500K into a new business. This can lure many people genuinely seeking this type of opportunity into a bogus venture that ends up defrauding them.

As four the fourth “new” scam, while investment advisers had been known to engage in inappropriate practices or give poor advice to investors in the past. However, in the wake of the Bernard Madoff Ponzi scam, which cost billions of dollars in investment losses, regulators and investors finally got the much needed wake up call that this type of massive scam can easily go on at an investment advisory firm while remaining undetected for years.

NASAA President Jack E. Herstein is reminding investors to make sure that they independently verify that an investment venture is legit and do a background check on the company and/or individual making the investment offer before deciding to sign up. You can always check with securities regulators to find out more about these parties and the products that they offer.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our investment fraud lawyers represent clients who were bilked in all types of financial scams. We have helped thousands of investors recoup their losses.

Laws Provide Con Artists with Personal Economic Growth Plan, NASAA, August 21, 2012

Crowdfunding top new investor threat, regulatory group says, CrainsNewYork, August 22, 2012

More Blog Posts:
NASAA Recommends Best Practices After Finding Brokers Deficient in Five Areas, Stockbroker Fraud Blog, October 26, 2010
Combatting Elder Financial Fraud: SEC, NASAA, & FINRA Update Their Best Practices to Protect Senior Investors, Stockbroker Fraud Blog, August 29, 2010
SEC Chairman Schapiro Says Jumpstart Our Business Startups Act Needs Better Investor Protections, Institutional Investor Securities Blog, March 21, 2012