RICHMOND — Opportunities abound for investors looking for lucrative places to put their money. However, so do unsuitable investment offerings, false promises, and scams. Without sufficient planning and information, investors face a potential minefield when it comes to mapping out their financial future.

Each year, investors lose billions of dollars to investment scams, and Virginians are no exception. The State Corporation Commission (SCC) urges consumers to avoid falling victim to inappropriate or fraudulent investment opportunities by investigating before they invest. “The path to safe investing is littered with traps that are likely to snare unwary investors. It pays to remember that any investment that sounds too good to be true usually is,” said Ron Thomas, director of the SCC’s Division of Securities and Retail Franchising.

“Investor traps are usually baited with slick sales pitches promising high returns for little or no risk,” Thomas said. Investors can also be lured by legitimate investment products that may not be suitable for them. Thomas encourages investors to weigh risk versus reward when considering any investment and to make sure it meets their personal investment goals. He urges investors to be particularly wary of the following:

Affinity Fraud. Con artists are increasingly targeting religious, ethnic, cultural, and professional groups. Some may be members of the group or pretend to be members in order to gain trust. Con artists often recruit a respected member of a community or religious congregation to promote their schemes by convincing them that a fraudulent investment is legitimate. In many cases, even these leaders become victims of what turns out to be a Ponzi scheme.

Internet Fraud. Scamsters continue to use technology to lure investors into “pump-and-dump” stock schemes. Be wary of investments that are pitched through unsolicited e-mails, instant messages, and phony websites.

Unlicensed Individuals & Unregistered Products. Anyone selling securities or providing investment advice about buying or selling securities must be appropriately licensed. Individuals who engage in these activities without a valid license to do so should be a red alert for investors. Carefully check out anyone providing investment advice or offering to help you buy or sell securities.

So far this year, the SCC has entered settlement orders against several individuals for allegedly selling investments without being properly registered. The Commission has also scheduled numerous hearings in recent months related to the sale of unregistered securities.

Real Estate Investment Contracts. Despite the recent decline in property values, investments in real estate have long been viewed as a “sure thing,” one with little downside risk and the potential for substantial returns. Just because an investment involves real estate, it may still be a security subject to full regulation under the state and federal securities laws, including registration requirements and antifraud rules.

Unsuitable Sales. What might be a suitable investment for one investor might not be right for another. Securities professionals must know their customers’ financial situation and refrain from recommending investments that they have reason to believe are unsuitable. For example, variable annuities are often unsuitable for senior citizens because they are generally long-term investments that limit access to invested funds. They often carry high surrender fees and their returns are vulnerable to stock market volatility. Make sure your investments are appropriate for your age, your need for access to money, and your risk tolerance.

Thomas also cautions Virginia investors to beware of foreign exchange trading, prime bank schemes, investments in oil and gas projects, private securities offerings, and investment seminars promising free meals and touting high returns with little or no risk.

“Education and awareness are an investor’s best defense against fraud,” Thomas said. Before making any investment, he urges Virginians to contact the Securities Division to find out if both the salesperson and the investment are licensed and registered in Virginia. “Make sure you receive written information that fully explains the investment before you hand over your money. Don’t fall for pie-in-the-sky claims. All it takes is one uninformed decision to wipe out your savings,” he said.

For more information, call the SCC’s Division of Securities and Retail Franchising in Richmond at (804) 371-9051 or toll-free (in Virginia) at 1-800-552-7945. You may also visit the division’s website at www.scc.virginia.gov/srf or visit the North American Securities Administrators Association’s website at www.nasaa.org.

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