Department of Commerce & Consumer Affairs Business Registration Division Office of the Securities Commissioner Investor Education Program Threats to Investors 8/20/2007

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program THREATS TO INVESTORS

Presentation Agenda Today we will cover:   Various threats to Hawaii investors   How to avoid becoming a victim   How we can help you State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Ponzi Schemes   Named for the swindler Charles Ponzi, who in the early 1900’s took investors for millions by promising 40% returns.   The premise is simple: pay early investors with money raised from later investors. There is no real underlying business. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Ponzi Schemes Eventually scheme collapses and the promoters walk away rich.   This scheme is an example of “taking from Peter to pay Paul”. Remember “If it sounds too good to be true, it probably is”. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Unlicensed Individuals Selling Securities   Firms and individuals who provide investment advice are required to pass certain examinations and get licensed before they can offer their services to the public.   Hawaii law also requires all brokerages and their sales persons to be licensed and registered under the securities laws with DCCA Securities Compliance Branch. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Unlicensed Individuals Selling Securities   Be sure to check with our office before you invest to be sure the seller or representative is legitimate. Remember “No license, No sale.” State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Affinity Fraud   It is human nature to trust people who are like yourself.   Con Artists are increasingly targeting religious, ethnic, cultural and professional groups to gain trust and then steal the savings of members of the group. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Affinity Fraud   Some may be members of the group or pretend to be members in order to gain your trust.   Con artist recruit a respected member of a community or religious congregation to promote their schemes by convincing them that a fraudulent investment is legitimate. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Affinity Fraud   Many cases, even the leader becomes a victim of what turns out to be a Ponzi scheme or some other fraud. REMEMBER: “Investigate before you invest – no matter who is selling the product.” State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Unregistered Investment Products   It pays to remember that legitimate securities investment products not otherwise registered with the federal securities authorities must be registered with state securities authorities before they may be offered for sale to the public. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Unregistered Investment Products   Con artists bypass this requirement because they know that stringent state registration requirements protect investors from their offerings and the way they sell these offering by promising too much, offering misleading information or leaving out important facts.   Call our Compliance office at (808) to verify if the investment being sold to you is registered. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Variable Annuity Sales Practices   Regulators are concerned that investors are NOT being told about: – –high surrender charges – –other fees – –costs associated with this product – –penalties for withdrawals – –steep sales commissions that agents often earn when they move investors into variable annuities. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Variable Annuity Sales Practices   Some investors also are misled with claims of guaranteed returns when variable annuities actually are vulnerable to the volatility of the stock market. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Variable Annuity Sales Practices   Remember: Variable Annuities are unsuitable for many retirees since they often lock your money in for long terms like 10 or more years. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Senior Designations   Some financial professionals use designations that imply that they are experts at helping seniors with financial issues.   They market themselves by putting designations after their names such as “Certified Senior Specialist”, “Senior Advisor” or “Retirement Advisor”.   These designations are NOT recognized by the state. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Senior Designations   The education, experience and other requirements for receiving and maintaining a “senior” designation vary greatly.   Be sure you understand the professional designations, who offers it and what it means, before you invest. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Senior Designations   Beware of “senior” or “elder” designations or credentials. Credentials can be misleading. – –Which ones are financial expert designations recognized under state securities laws? – –Which ones are not? – –Can you tell the difference? CFPChFC PFS CFA CIC CSASS SE RA State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

These are the only recognized financial expert designations under the state securities laws. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program AbbreviationDesignationOrganization 1 CFP Certified Financial PlannerInternational Board of Standards and Practices for Certified Financial Planners, Inc. 2 ChFC Chartered Financial Consultant American College 3 PFS Personal Financial Specialist American Institute of Certified Public Accountants 4 CFA Chartered Financial AnalystInstitute of Chartered Financial Analyst 5 CIC Chartered Investment Counselor Investment Counsel Association of American, Inc.

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program AbbreviationDesignationOrganization 1 CSA Certified Senior AdvisorWhatever organization they say they’re with… 2 SS Senior Specialist 3 SE Senior Expert 4 RA Retirement Advisor These are NOT recognized financial expert designations under the state securities laws.

Investments Seminars   Promoters of unsuitable investments are increasingly seeking potential investors, particularly seniors.   Promoters offer these seminars and a “FREE MEAL”.   Promoters offer these investments with “higher returns and little or no risk”. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Investments Seminars   In many situations, Securities Regulators see just the opposite: – –High risk – –Little or no returns – –Tons of hidden fees – –Salesperson is gone – –Money is gone – –Just disastrous losses… REMEMBER: There’s no such thing as a free lunch! State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Sales Pitches   Con Artist use various sales pitches to lure seniors and others into turning over their money to them.   Salespeople who use these pitches can be a relative or friend.   The pitches can come to you from a phone call or . State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Sales Pitches Remember: If the salesperson uses these “phrases”, it could be a SCAM: “Your profit is guaranteed.” “There’s no risk.” “You would be a fool to pass this by.” “I’ll get you the paper work later.” “Just make the check out to me.” “This offer is only available today.” State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Avoid being a Victim -Contact the State Office of the Securities Commissioner to check if the investment product and the person is registered. Ph# (808) Contact Better Business Bureau to check if any complaints have been filed against the venture’s promoters or principles. Ph# (808) State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Avoid being a Victim   Deal only with financial advisers, broker dealers or financial institutions having a proven track record with the State and BBB. Don’t just take anyone’s word for it. Verify with reliable sources.   Ask for written information on the investment product and the business. Read it carefully!   Stay clear of investments promoting no downside or risk. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

Avoid being a Victim   Don’t take everything you hear or read at face value: – –Ask questions if you don’t understand. – –Do some research for your yourself. – –If you need help in evaluating the investment, go to someone independent whom you can trust such as an attorney or an accountant who is not part of the promoter’s team of “specialists”. State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program

How we can help - State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program Contact the Office of the Securities Commissioner for help: Compliance Branch: call to check if your broker dealer or investment adviser is properly registered with the State. (808)

How we can help - State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program Enforcement Branch: call to report fraud or any securities law violations HI-SCAMS Investor Education Program: call us for more information or to request a presentation. (808)

FOR MORE INFORMATION Contact our Office: State Of Hawaii Department Of Commerce & Consumer Affairs, Office of the Securities Commissioner 335 Merchant Street, 2 nd Floor Honolulu, HI Website: State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program To report investment fraud call HI SCAMS