RICHMOND — Recent stock market volatility, low yields on certificates of deposit and other fixed income investments, and general economic uncertainty have prompted many Virginians to look for safer and more profitable places to put their money. Whether you are saving for retirement or your child’s education, making wise investment decisions and avoiding investor traps are key to protecting your financial nest egg.

The State Corporation Commission (SCC) warns that headlines regarding the economic downtown may be used to lure unwary investors into surrendering their hard-earned money. Ron Thomas, director of the SCC’s Division of Securities and Retail Franchising, urges Virginians to beware of sales pitches that promise big returns with little or no risk. “Following the latest or greatest get-rich-quick scheme without doing their homework could leave investors holding an empty bag,” Thomas said. “Don’t be a victim of unsuitable or fraudulent investment opportunities. Investigate before you invest,” he said.

Some of the latest headline-related investor complaints state securities regulators are receiving involve investment pitches touting gold and other precious metals, wave energy, synthetic fuels, and distressed real estate. Thomas urges investors to be particularly wary of the following:

• Gold and Precious Metals. Higher precious metal prices and the promise of an ever- appreciating, “tangible” asset have lured unsuspecting investors into a variety of scams. There are no guarantees with gold or precious metals, even in legitimate markets. In the spring of 2011, silver’s value declined by 30 percent in a single three-week period.
• Distressed Real Estate Schemes. Investment offerings involving distressed real estate have been on the rise following the collapse of the real estate bubble. While many legitimate investment offerings are tied to real estate, investment pools targeting distressed real estate have become increasingly popular with con artists as well as investors. Investments in properties that are bank-owned, in foreclosure, pending short sales or otherwise in distress are risky and should be evaluated carefully. Like other securities, interests in real estate ventures must be registered with state securities regulators.
• Energy Investments. These may involve oil and gas investments or development of new energy-related technologies. They often rely on high-pressure marketing tactics and promise quick profits. Even legitimate offerings in these ventures may carry a high degree of risk.
• Promissory Notes. These short-term debt instruments are often offered by little-known or nonexistent companies and promise high returns with little or no risk. They give investors a false sense of security by promising fixed interest rates and safety of principal. However, even legitimate notes carry some risk that the issuers may not be able to meet their obligations. Most promissory notes and the persons who sell them must be registered with state securities regulators.
• Affinity Fraud. Marketing a fraudulent investment scheme to members of an identifiable group or organization continues to be a lucrative practice for Ponzi scheme operators and other fraudsters. The most commonly exploited are the elderly or retired, religious groups, and ethnic groups. Investment decisions should always be made based on careful evaluation of the underlying merits rather than common affiliations with the promoter.
• Unlicensed Advisors. Anyone selling securities or providing investment advice about buying or selling securities such as stocks, bonds, or mutual funds, must be appropriately licensed. One should investigate anyone providing investment advice or offering to help you buy or sell securities.
• Bogus or Exaggerated Credentials. State securities regulators have led the effort to prevent the misuse of credentials or designations intended to imply special expertise or training in advising senior citizens on financial matters. Now, state regulators are noticing an increase in the use of other bogus credentials or exaggerated designations. Investors should press for full disclosure and the meaning behind all designations, and should check with their state regulator if they have any suspicions about claimed credentials.

Thomas expects similar investment traps to persist for the foreseeable future. Many involve complex financial products that typically are unsuitable for the average investor.

Thomas urges investors to carefully research any investment opportunity and the person and company offering it. “Steer clear of investing landmines by making sure you understand the investment product being offered. Obtain written information that fully explains the investment before you hand over your money. Weigh risk versus reward and make sure any offering meets your personal investment goals,” Thomas said. “Contact the SCC’s Securities Division before you invest to find out if both the salesperson and the investment are registered in Virginia. If you don’t, chances are your hard-earned money cannot be recovered,” he said.

For more information, call the Securities Division 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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