Maine’s Top Securities Regulator Releases Agency’s Annual List of Investor Traps

GARDINER, MAINE  —  Maine’s Securities Administrator Judith Shaw has released the Office of Securities’ new list of the ‘top traps’ that investors should avoid when seeking to jump-start their investment portfolios.  As the aftermath of the financial crisis and continuing market uncertainty cause concerns for many investors, Administrator Shaw is advising the public to be well-informed about scams and other pitfalls that trap too many people in bogus or ill-advised investments.

In releasing her agency’s updated annual list, Shaw said investors rebuilding nest eggs damaged by the market collapse, and those frustrated with low interest rates, are most susceptible to risky investments that can often turn a promise of profit into thin air.

“Paying attention to the details of an investment opportunity, and approaching any investment that claims to be paying higher than average returns with a healthy sense of skepticism, are vital to avoiding investment fraud,” Shaw said. “The other key is to check out the investment and person selling it with state regulators before committing funds.  The more you are prepared, the better your chance of sidestepping a trap that can leave you in a financial hole for many years.”

Summer 2010:  Top 10 Investor Traps

Shaw listed the following products and practices that deserve special scrutiny:


  • Gold and Precious Metals.  High gold prices have trapped some investors in gold bullion scams in which a seller offers to retain “purchased” gold in a “secure vault” and promises to sell the gold for the investor when it gains in value.  In too many instances the gold does not exist.  Investors have also been harmed by people pitching investment pools in precious metal commodities and gold mines.
  • Green Schemes.  Investment opportunities tied to the development of new energy-efficient “green” technologies are increasingly popular with investors and scammers alike.  Scammers also exploit headlines to cash in on unsuspecting investors, whether from investments related to the clean-up of the Gulf of Mexico oil spill or the rising national interest in environmental innovations tied to “clean” energy, such as wind energy, wave energy, carbon credits and other alternative energy financing
  • Oil & Gas Schemes. Regardless of the price at the pump, fraudulent energy promoters continue to capitalize both on interest in the commodity and on oil and gas as investment alternatives to the stock market. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors who cannot afford the risk. Securities investments offering profit participation in oil and gas ventures can be legitimate, but even when the underlying project is genuine, any revenues realized can be absorbed by high sales commissions paid to the promoter and dubious “expenses” skimmed off by the managing partner. Some promoters, many of whom have had past run-ins with regulators, have attempted to structure their “joint ventures” or “general partnerships” to avoid securities regulation and deprive investors of important protections.
  • Exchange-Traded Funds (ETFs). While ETFs resemble mutual funds in many respects, some, such as leveraged and inverse ETFs, may contain hidden traps and complexities, and may consist of highly leveraged bundles of exotic financial instruments, including options and other derivatives. Given their potential for volatility, leveraged ETFs may not be suitable for most individual investors. These types of ETFs are primarily designed for short-term trading (such as day-trading), and not for buy-and-hold strategies. Also be aware that some ETFs are thinly traded and may not always be liquid.
  • Foreign Exchange Trading Schemes. Currency trading and foreign exchange (forex) trading schemes can be particularly harmful to unsuspecting investors. Trading in foreign currencies requires resources far beyond the capacity of most individual investors. Promoters profit by charging high commissions or selling investment strategies assuming that trades are actually made.  In some instances, salesmen and promoters who claim to have complex algorithms or propriety software programs which allow them to beat the market are actually just running Ponzi schemes. Too often, state regulators have encountered situations where there are no trades; the money is simply stolen.


  • Affinity Fraud. Scam artists often use membership in various clubs and organizations as a way to convince other members of the group to trust the legitimacy of an investment they may pitch. Typical affinity groups include religious, ethnic, professional, educational, language, age and any other group with shared characteristics that promotes a sense of trust among members. Rather than trusting a person or company due to a common affiliation, investors should seek further information about the investment from an unbiased, independent source, including state regulators, and thoroughly review the promises and risks.[Soft Break]
  • Undisclosed Conflicts of Interest. When obtaining investment advice about securities, investors need to know that not all advice is given with their best interest at heart. Some salespeople can receive lucrative commissions when they sell a product that is risky or inappropriate for an investor, but don’t have to disclose that financial incentive. Investors should demand that anyone giving advice or recommendations disclose how they are compensated.  If you are unclear on what commissions or fees the salesperson is receiving, you should consider working with another adviser.
  • Private or Special Deals. Some investors encounter investment opportunities or deals couched as “private” or only for “special” clients.  These so-called “private” or “exempt” offerings may be inappropriate for average investors because of the relative difficulty of thoroughly checking out the issuer’s financial and business bona fides (which would otherwise be required to be disclosed as part of an Offering Statement).  Although used by many legitimate issuers, private offerings have become an attractive vehicle for con artists to use to scam investors by promoting the “special” or “private” nature of an investment schemes and by making false and misleading representations.
  • “Off the Books” Deals. “Off the books” sales are an increasingly common threat to investors. Be cautious if your broker offers an investment on the side instead of one sold through his or her employer. These “off books” investments may not only be illegal, but they can also be especially risky without the oversight and supervision of the broker’s employer.
  • Unsolicited Online Pitches. Promoters of fraudulent investment schemes are moving beyond e-mail and turning to social media and online communities, such as Facebook, Twitter, Craigslist, YouTube and angel investor sites such as the Go Big Network to solicit unsuspecting investors. Some may use these sites to spread misinformation to artificially inflate the value of stock before selling in a “pump and dump” scheme. Others may promise high-yield, tax-free returns from investments in offshore markets. Once the money is sent to another country and is in someone else’s control, investors may not be able to get it back. In many cases, these offers turn out to be Ponzi schemes. Investors should approach any unsolicited investment opportunity with suspicion.

Administrator Shaw cautioned investors to familiarize themselves with the warning signs of investment fraud and independently verify any investment opportunity, as well as the background of the person and company offering the investment.  “Investors should do business with licensed brokers and advisers and should report any suspicion of investment fraud to Maine’s Office of Securities,” Shaw said. “One call can protect your financial security and might prevent others from becoming victims as well.”

Consumers are encouraged to contact the Office of Securities at 1-877-624-8551 to check out any person or firm offering any kind of investment; the Office of Securities is part of Maine’s Department of Professional and Financial Regulation, which encourages sound ethical business practices through the regulation of insurers, financial institutions, creditors, investment providers, and numerous professions and occupations for the purpose of protecting the citizens of Maine. Consumers can learn more about the Department online at



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