NASAA tags top investor threats for 2020

North American regulators warn of five risky products or schemes, and recommended steps for protection

NASAA tags top investor threats for 2020

Investors must take special care to protect themselves against a handful of risky investment products or schemes this year, according to the North American Securities Administrators Association (NASAA).

Drawing from a survey of its members, which include state and provincial securities regulators throughout the United States, Canada, and Mexico, NASAA identified five threats that are likely to trap investors this year. Many of the threats, the association said, involve private offerings that are not subject to federal securities registration requirements.

“It is important for investors to understand what they are investing in and who they are investing with,” Christopher W. Gerold, NASAA president and chief of the New Jersey Bureau of Securities, said in a statement. “Don’t fall for promises of guaranteed high returns with little to no risk or deals pitched with a false sense of urgency or limited availability.”

High-interest promissory notes, the association said, may be tempting to investors, especially seniors and others subsisting on a fixed income. While promissory notes from legitimate issuers may provide retail investors with reasonable investment returns at acceptable risk levels, NASAA member state regulators have reportedly detected “an unfortunately high number of promissory note frauds.”

Aside from warning investors against Ponzi and pyramid schemes, the association cautioned against investment fraud conducted through social media or the Internet. Red flags associated with Internet-based schemes include promises of unreasonably high risk-free returns, offshore operations, incentives for recruiting friends, and professional-looking sites with little to no information.

Real estate investments were also identified as a “perennial investor trap,” particularly when they are aggressively marketed as an alternative to more traditional retirement planning strategies based on stocks, bonds, and mutual funds. One of the most popular investment pitches, “hard-money lending,” involves real estate investments financed through non-bank loans that can come with higher interest rates.

Another popular pitch is “property flipping,” where distressed real estate is refurbished and immediately resold. “Property flipping financed through borrowed funds or outside investments can be done entirely lawfully, but it can also be a source for fraud,” NASAA said, explaining that scammers may misrepresent the value of the property or expected profit potential, misappropriate borrowed or invested funds, or use unwitting investors as “straw buyers” to get loans from banks or mortgage lenders on their behalf.

The last threat, according to NASAA, comes from cryptocurrencies that may be public fronts for Ponzi schemes and other frauds. Promoters of crypto products may also have an easier time fleecing investors since they do not fall neatly into existing regulatory frameworks, the association said.

“Investing in cryptocurrencies and related financial products accordingly should be seen for what it is: extremely risky speculation with a high risk of loss,” NASAA said.


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