By Claudia Buck
McClatchy Newspapers (MCT)
When it comes to investment fraud, the perpetrators chase the news.
After 9/11, it was phony anti-terrorism technology. During the housing boom, it was real estate scams. A year ago, it was "green technology" swindles. Today, amid a financially stressed economy, it's "prime bank" and other high-yield, quick-money quackery.
"They always seem to mirror economic times. They exploit whatever's current," said Kevin Baker, head of the FBI's white-collar crime squad in Sacramento, Calif.
And while none approach the heft of the current Bernard Madoff scandal that has wiped out billions from trusting investors around the world, Baker says Ponzi schemes and other investing scams are running so rampant that his 25 or so agents can't keep up.
Baker's agents go after only the most egregious cases, typically those that have cost victims at least $1 million in total losses. That includes several local cases now under active investigation.
The FBI doesn't maintain data on investment fraud as it does on mortgage fraud, which is often reported by banks and lenders. But in the Sacramento field office, which covers Central California between Bakersfield and Redding, Baker said reports of investment fraud have "significantly and noticeably increased since the economy has weakened."
Likewise, officials at the California's Department of Corporations say the rocky economy is playing into the hands of fraudsters.
"People who aren't normally susceptible to pitches for (risky financial) products may be more so than a year ago," said Andrew Roth, who oversees financial fraud education for the department. "It's more true of seniors and close-to-retirement folks because they have less time to weather the financial storm."
That's why many can fall prey to "high-yield" scams that try to entice investors with promises of better-than-a-bank returns.
The FBI says scammers use the same methods, regardless of whether they're peddling real estate, gold bars or new technology. These include slick promotional brochures, touting great returns; official-looking prospectuses, financial filings and pending patents; and aggressive salespeople, known as "promoters," who are paid up to 40 percent in commission, making them highly motivated.
In one case, Baker said, a potential investor came to the Sacramento offices of a phony investment company, asking to see evidence of its "facial recognition" software. To accommodate him, the fraudsters scrambled to download some crude software off the Internet and line up a conference room. They were convincing. The investor, apparently the only one who bothered to request a demonstration, handed over $200,000.
To avoid becoming a victim, here are some tips from law enforcement, public officials and investing watchdogs: be skeptical; do your research on the individual and the companies; get second opinions.
"A crooked adviser can turn your nest egg into a goose egg overnight and leave you destitute," said Don Blandin, CEO and president of Investor Protection Trust, a Washington, D.C.-based nonprofit that promotes investor education.
Blandin, who recommends checking on a financial adviser's credentials, follows his own advice. Just last week, he said, a colleague recommended a Florida adviser as a conference speaker. When Blandin plugged the adviser's name into the SEC's database, he discovered the "highly recommended" adviser had failed a few financial exams, been fired from two jobs and fined by regulators.
Even someone "who seems wonderfully nice," said Blandin, "may not be any good — or worse."
The FBI's Baker said victims of investment fraud cross all income, education and age ranges. "We've got doctors who are victims; we've got plumbers who are victims."
The common denominator, he said, is that they drop their guard, become too trusting or are too reluctant to appear ignorant and don't ask the probing questions.
"No investment is so hot that you can't take 24 or 48 hours to make sure it's legitimate and the person has the appropriate licensing to offer it," said Roth, with the California's Corporations Department. He advised discussing a potential investment with someone who has nothing to gain — your CPA or "even a neighbor whose judgment you trust. It can really make a difference."
The best prevention is arming yourself with information.
As Blandin urges investors: "Don't just be scared about the news on scams. Get angry and commit to become a wise and safe investor."
(Claudia Buck is the assistant business editor of The Sacramento Bee. Personal Finance Notebook answers questions about money matters, tapping a roster of experts for advice on navigating the often-confusing world of personal finance. Submit questions to email@example.com or P.O. Box 15779 Sacramento, CA 95852.)
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