Promises of huge financial returns from securities investments such as stocks and bonds, oil and gas leases or limited partnerships are often nothing more than that -- empty promises. A growing number of consumers, primarily seniors, are targeted by fraudulent securities promoters and persuaded to invest their life's savings.
Although most securities investments are not fraudulent, the Attorney General warns Missourians to be leery when a promoter promises huge returns on an investment.
Protection against fraud, deceit and misrepresentation is available to Missourians under the state's Uniform Securities Act. The act empowers the attorney general and county prosecutors to criminally prosecute securities swindlers.
Penalties for violating provisions of the act include up to 10 years in prison, a $1,000,000 fine or both. Violations of the Securities Act also are grounds for civil injunction or administrative action. The act also allows consumers defrauded in securities transactions to file a private lawsuit to seek restitution.
Before investing in securities, there are several things you can and should do.
Unless specifically exempted by statute, all securities brokers and securities sold in Missouri must be registered with the Securities Division of the Secretary of State's Office.
The easiest way to check on registration requirements for a security is to call the Securities Division at 573-751-4136 or 800-721-7996.
- Don't invest unless you can afford to lose what you invest.
- If it sounds too good to be true, it usually is. No legitimate promoter will claim to offer a risk-free investment -- commodities or securities investment is a form of speculation or risk-taking. A solicitation that claims there is little or no risk is a dangerous "red flag."
- Verify that a brokerage firm is registered with the Securities Division. Firms that trade commodities also are usually required to register with the Commodity Futures Trading Commission and are subject to its regulations.
- Registration means the CFTC can tell you whether there are any past legal actions taken or present ones pending by the government against the company. Be suspicious of unregistered firms that trade commodities and remember that not all registered firms are honest ones. Also, consider consulting with a trusted adviser.
- Make sure the broker's address and phone number match the company for which he claims to work. Never give money to a collector or messenger who visits your home following up on a phone sale. Never write the broker's name on a check as payee; use the company's name.
- Ask the firm to send a prospectus or other literature about the firm. Don't be swayed, however, by the glossy brochures some con artists produce. Also, ask for a written proposal describing conditions of the contract and a form outlining the risks involved with the investment.
- Ask the phone solicitor to explain the investment to your lawyer or accountant. Even if you don't have a lawyer or accountant, ask because the salesperson's response might be a tip-off to his real identity. A legitimate broker will have no objections while a con artist will say something like, "Normally I'd be glad to, but there just isn't enough time for that," or "Those people don't give investment advice."
- Arrange for a meeting at the broker's or your attorney's office. It is never a good idea to do business with a faceless person over the phone. Ask a third party to attend.
Fraudulent securities brokers often run their business from a "boiler room" -- a low-budget office lined with phones. The classic securities fraud involves an out-of-state promoter who contacts prospective Missouri buyers by phone. The promoter's sales pitch includes:
- Claims that no risk is involved.
- Guarantees of large and fast profits.
- A requirement that money be paid immediately or the opportunity will be missed.
The consumer — convinced the promoter is making a legitimate offer — sends large sums of money to the promoter. The fraudulent promoter then disappears with the money.