Monthly Archives: October 2013

The Financial Industry Regulatory Authority (FINRA) has issued a new investor alert that cautions investors about investing in private placements.  A private placement is an offering of a company’s securities that is not registered with the Securities and Exchange Commission (SEC) and is not offered to the public at large.

“Investors should understand that many private placement securities are issued by companies that are not required to file financial reports, and investors may have problems finding out how the company is doing. Given the risks and liquidity issues, investors should carefully assess how private placements fit in with other investments they hold before investing,” said Gerri Walsh, FINRA’s Senior Vice President for Investor Education, in the alert titled Private Placements—Evaluate the Risks before Placing Them in Your Portfolio.

Among other things, FINRA advises investors to do the following before investing their money in a private placement investment:

*Carefully review the private placement memorandum or other offering document.

*Find out as much as you can about the company’s business and understand how and when you might liquidate your private placement securities.

*Ask your broker what information he or she was able to review about the issuing company and this private placement.

*Be extremely wary if you receive paperwork to sign about a private placement without having a personalized discussion with your broker about why such an investment is right for you.

*Be extremely wary of private placements you hear about through spam emails or cold calling. They are very often fraudulent.

Eighty percent of Americans have found themselves targeted by investment scammers, according to a new report from the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation. Findings in the study also showed that 40 percent of respondents were unable to identify even the most classic red flags of financial fraud.

For example, many of those surveyed lacked an understanding of reasonable returns on investments, leaving them vulnerable to fraudulent pitches that promised unrealistic or guaranteed returns, the study said.  In fact, more than 4 in 10 respondents found an annual return of 110% for an investment appealing and 43 percent found “fully guaranteed” investments to be appealing. In reality,  no investment is without risk and 100% annual returns are highly improbable. Such promises are common pitches of fraudsters.

Con artists are adept at using a variety of tactics to get their hands on consumers’ money. The FINRA Foundation’s survey found that 64 percent of those surveyed had been invited to an “educational” investment meeting that was likely a sales pitch. Additionally, 67 percent of respondents said they had received an email from another country offering a large amount of money in exchange for an initial deposit or fee.

Older Americans are particularly vulnerable to fraud scams. The FINRA study found that Americans age 65 and older were more likely to be targeted by fraudsters and more likely to lose money once they were targeted. Upon being solicited for fraud, older respondents were 34% more likely to lose money than respondents in their forties, the study said.

This quiz from ABC News lets you test your awareness about financial fraud.