SEC Warns Of Investment Fraud Such As Ponzi Schemes, COVID Stocks

The Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy is urging investors to be on high alert to avoid falling victim to investment fraud.

A December, 2020 press release from the SEC stated that they had experienced a “significant uptick in tips, complaints, and referrals involving investment scams” and warned that turbulent times, such as the COVID-19 pandemic, are prime opportunities for fraudsters to try to victimize investors.

The press release included tips to help investors avoid the following fraudulent investment scams:

Fake CDs

Certificates of deposit (CDs) can be attractive investments during periods of high volatility due to their fixed rate of return. The SEC warns that some online advertisements have directed investors to spoofed websites that mimic legitimate sites of actual financial institutions and have URL addresses that are similar to the real websites. The spoofed sites may be selling fake CDs.

The SEC recommends investors be on the lookout for the following that can help determine if a website selling CDs is spoofed:

Promoting CDs exclusively and no other products
Offering high interest rates without penalty for early withdrawal
Naming “clearing partners” who are supposedly SEC-registered
Telling investors to wire money overseas or to accounts with different name than the financial institution

COVID-19-Related Stock Promotions

There have been a number of claims about publicly-traded stocks that are promoted as being able to profit from the COVID-19 pandemic. For example, it may be claimed that the companies have a product or service that can prevent or treat COVID-19 and that the stock price will increase drastically as a result.

The SEC says that any claim that a company makes about being able to stop COVID-19 should be treated with caution. These claims pay be related to a pump and dump scheme, especially when associated with microcap or “penny stocks”. The SEC has already ordered dozens of trading suspensions and brought fraud charges against companies claiming to offer COVID-19 related services and products.

Investors could lose a large amount of money if they invest in a company that makes false or inaccurate claims or if they can’t sell their shares because the company’s trading is suspended.

Ponzi Schemes

A Ponzi scheme is when a fraudster uses money from new investors to pay old investors. Investors believe they are receiving a return on their investment in a profitable business, but they’re just getting another victim’s money.

The SEC advises investors to be on the lookout for these hallmarks of Ponzi schemes:

Too-Consistent Returns. An investment that delivers returns that are steadily positive regardless of the economy and market should be treated with caution because the value of an investment varies over time. Overly consistent returns may be a result of a schemer paying investors with proceeds from other investors and not from the proceeds of the business.

High Returns Guaranteed. Claims of high returns with low or no risk are often associated with Ponzi schemes. Usually, the potential for high return comes with high risk, and every investment has some risk.

Unregistered Sellers. The SEC states that most Ponzi schemes involve people or firms that are not properly licensed or registered. Investors can research a seller for free at investor.gov.

Affinity Fraud/Community-Based Financial Scams

Scammers have been known to exploit the trust and friendship of an identifiable group, such as people with a common religion, ethnicity, or nationality. This is known as an affinity fraud. The scammers may be a member of the group they’re targeting, or they may be pretending to be a member of that group.

Just because you have something in common with someone doesn’t mean they’re selling you a good investment. Investors should still check the background of the seller and exercise caution.

The SEC regularly brings charges against affinity fraudsters. Recent enforcement actions have targeted members of the U.S. military, African immigrants, senior citizens, hearing loss communities, Haitians, and others.

Recover Investment Fraud Losses

If you have investment losses, contact Silver Law Group, a nationally-recognized law firm representing investors. The securities and investment fraud attorneys at Silver Law Group work with investors who have been the victims of fraud.

Many of our cases involve Ponzi schemes, violations of federal securities laws, and other fraud. Our team of lawyers, accountants, and investigators work to maximize your recovery.

Scott Silver, Silver Law Group’s managing partner, is chairman of the Securities and Financial Fraud Group of the American Association of Justice and represents investors around the country and internationally in securities investment fraud cases. Contact us today at ssilver@silverlaw.com or toll free at (800) 975-4345.