Top 5 Investment Scams

Last Updated Aug 3, 2010 12:50 PM EDT

Crooks love nervous investors. They're often so frozen with fear that they become sittingducks for scams and traps. And the stock market's recent roller-coaster ride -- not to mention the past decade of non-performance -- has turned even formerly intrepid investors into quivering targets for investment fraud and folly.

Here are 5 investments you need to avoid if you want to sidestep permanent damage to your investment portfolio.

Gold schemes: Yes, you can buy gold. Yes, you would have profited hugely if you had bought a legitimate gold investment in 2002 and held it until gold prices recently hit an all-time high. But now, con artists are using that recent history to offer to buy gold for you and "hold" your gold in their "secure vault" for quick turn-around trading. Too often, the secure vault is a fiction, as is the gold investment, according to the North American Securities Administrators Association's latest list of top investment traps.

Foreign Exchange Trading: There is a legitimate (though exceptionally risky) FOREX market, but most individual investors don't have the means to play in this high-stakes game. That hasn't stopped con artists from convincing individuals that they can earn lavish profits by tapping into some body's "proprietary trading system" that "uses complex mathematical algorithms to beat the currency markets." Most often, that algorithm is linked back to P.T. Barnum's famous math: "there's a sucker born every minute." State regulators said they've found that these proprietary systems don't exist. The FOREX crooks aren't even trading currencies. They're just taking money from investors and using it to live lavishly. Ironically, the crooks often send investors slick brochures of the investment "expert" next to his Rolls Royce and expansive mansion, claiming that his success is proof that his system is a foolproof road to riches. In reality, it's photographic evidence that there were previous investors as foolish as those now getting pitched on this con. (Or, it could be a cool photo that came with the frame. Why would a con artist want his real face plastered on a web site, allowing disgruntled investors to recognize him?)

High-yield investment programs, or HYIPs: These are scams, plain and simple. And yet they're being marketed online, often through "friends" networks on Facebook. The Financial Industry Regulatory Authority recently warned that whole online communities had sprung up to support this scam with promotional YouTube videos and fake "rating" sites that supposedly direct consumers to the best HYIP deals. The HYIP programs purport to pay high interest rates that compound rapidly -- their "long term" investments supposedly pay off in 60 days. In reality, they're Ponzi schemes, where old victims are paid off by new victims until the scam runs out of money or fools. The Internet gives them a great way to reach vast numbers of youthful, unsophisticated investors, who are then used to pitch the con to their friends.

Oil & Gas Partnerships: These scams are as old as the hills, but with commodity prices soaring, they've come back with a vengeance, according to NASAA. In the best cases, these investments are risky. In the worst case, the partnerships are used by sketchy operators, who have long histories of regulatory violations, to rob investors through "sales commissions" and "partnership fees."

Green schemes: Clean energy was all the rage even before the BP oil spill. That's got con artists out in droves, attempting to convince gullible investors that they can get in on the ground floor of some remarkable environmentally-friendly technology that's sure to take the world by storm. Unless this is being sold by your college roommate, who was an ethical engineering genius, don't even consider it.

Photo by Tao Zyhn
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