Investment Schemes Teacher Institute 2016

Oklahoma Securities Commission Our mission is Oklahoma investor protection through the administration and enforcement of the Oklahoma Uniform Securities Act of 2004.

Uniform Securities Act of 2004 Prohibits fraud in securities transactions Requires the registration of: Broker-dealers and agents Investment advisers and investment adviser representatives Securities Investor Education

Purpose of the Presentation Identify common investment schemes Help you to avoid becoming a victim of investment fraud. Investigate BEFORE you Invest

Investing Risk Interest rate risk Business failure risk Market price risk Inflation risk Political risk Fraud risk Investor Protection Trust The Basics of Savings and Investing: Investor Education 2020 Unit 2

How do investors encounter fraud? Online Telephone Personal visits Newspaper advertisements Referrals from friends Mail

How do you become a victim? Someone gains your confidence and trust Promoter gains access to your financial information Promoter uses religion to persuade you to act Promoter guarantees safety of your investment

Major Types of Investment Fraud Online Fraud Affinity Fraud Pyramid Scheme Ponzi Scheme Stock Swindles Investor Protection Trust The Basics of Savings and Investing: Investor Education 2020 Unit 4

Online Fraud Social networking – via Facebook, Twitter, Linkend In, eHarmony, etc. Red Flags Promises of high returns and no risk Offshore operations E-Currency sites Bonus to recruit friends Professional websites with little information No written information Investor Protection Trust The Basics of Savings and Investing: Investor Education 2020 Unit 4

Affinity Fraud A investment scheme where the perpetrator preys upon members of an identifiable group. Examples Church Group Civic Club members

Pyramid Scheme Operates on the principle that each member of a group will receive a profit or a cut for recruiting new members to join the scheme. No revenues from sale of goods or services, cash comes from enlisting new investors who pay for the right to enlist more downstream investors. Attempts usually made to disguise as a multi-level marketing business.

Ponzi Schemes Early investors are paid off with money from new investors May operate for a long time before the promoter disappears For every investor who makes money, another investor losses money Majority of our cases involve some aspect of a Ponzi Scheme

Stock Swindles Securities of promotional start-up companies with untested products, no assets, employees or business plan Brokers take companies and hype them to drive up their market value Insiders get cheap stock and after price is raised dump the stock on the market for a profit Stock prices collapse

Common Methods Used to Perpetrate Investment Schemes Boiler Rooms Promissory Notes Viatical Settlements

Boiler Rooms Telemarketing Scripted sales pitches Sales pitches with slick talk and no risk Demand for immediate action Get rich quick No business location disclosure Confusing or conflicting facts Usually involves exotic businesses like precious metals or oil and gas

Promissory Notes Short-tem debt instruments issued by little known or non-existent companies promising high returns-upwards of 15 percent monthly Minimal risk or no risk Conflicting and/or confusing terms

Viatical Settlements Investments in the life insurance policy of a terminally ill person Unrealistic high rates of return High risk investment Difficult to accurately predict life expectancy Sales person has little knowledge of high-yield investment

Oklahoma Business Sales Act What is a Business Opportunity? Franchise Distributorship Multi-level marketing business Work at home business Vending machine business

Business Opportunity Fraud Easy Money- Promoter promises 100%, “sure-fire” advice and assistance in selling goods or services to an untapped market while the person works from home Preys on dreams of owning your own business Promoter promises superior products and endless inventory, but you get slick catalogues and order forms for overpriced goods

Unfair Sales Practices in Investment Account Unsuitable securities purchases Unauthorized trading, churning, conversion Warning signs High pressure sales methods Hot tips Mismarked confirmations or new account forms Incorrect net worth or income Incorrect investment goals Trades designated as “unsolicited” Requests to send money directly to agent Agent asks to personally deliver distribution checks rather than you receiving them in the mail Agent requests you make your checks directly payable to the agent not the firm

How to protect yourself Stop and think before acting Study the deal – and get input Stick to what is clearly understood Apply critical-thinking skills

Ask yourself the following Why am I interested in this deal? Do I want to gamble? Can I afford to lose my entire investment? Do I understand the risk of loss? What is the basis for the purchase price? What do I know about management? Where is the business located and how long has it been in business?

Investigate BEFORE you Invest Search the company and sales person online Read as much as you can about the investment Obtain independent advice from someone who understands the investment Call the Oklahoma Securities Commission

Oklahoma Securities Commission Invest Ed® www.investedok.org Documentaries PSAs Radio Minutes

Oklahoma Department of Securities www.securities.ok.gov (405) 280-7700 Case search Registration Complaints News