As 2014 nears its end, investors are looking forward to 2015, and unfortunately, so are scammers.
The Pennsylvania Department of Banking and Securities has listed the top four emerging threats facing investors in the New Year. They are binary options, marijuana industry investments, stream-of-income investments and virtual currencies and cyber security risks.
“Investors may be going into them without a clear understanding of what they’re investing in,” said Christina Kotsalos, director of investor education with the DOB. “They may not be well-versed in the type of investment vehicles they’re contributing to and therefore what they feel they are going to get in return many not be exactly what they signed up for.”
Kotsalos said scammers may try to take advantage of growing trends such as the medical marijuana industry and virtual currency, such as Bitcoin. Investors are urged to take time and do their research before investing in newer areas.
“For example virtual currencies, we want to make sure they first understand what virtual currencies are and how they work,” said Kotsalos. “If they can’t sleep on it, on an investment decision they may have already made, then it probably means it wasn’t a good choice. We definitely stress they shouldn’t be rushed, they should check it out first.”
Being rushed is a big red flag of a fraudulent investment, said Kotsalos. She said it’s important, even for those with someone else handling their investments, to be aware of what’s out there.
“People in general do a lot of research when it comes to buying a car or even a refrigerator, but when it comes to their investments it seems as though they leave it all up to a professional which is great, but you do have to do your own due diligence as well and understand where your money is going,” said Kotsalos.
There are no hard numbers on how many are affected by investment fraud each year, but Kotsalos said those who are taken in by scams have a lot at stake.
“Unfortunately, for the older investor it could be their entire life savings without much time to recoup or make up for it,” she said, “and for any investor, there’s always that embarrassment when they find out they’ve been scammed, and that embarrassment keeps them from reporting investment fraud.”
Binary options are securities in the form of options contracts that have a payout with an all-or-nothing structure. Binary options risks include illegal distributions, fraudulent promotion schemes, identity theft and refusals to return among other things. Stream-of-Income investments introduce investors to individuals selling a stream of income such as pension payments or government disability payments. These can carry significant risks as laws pertaining to them vary.
As for marijuana industry and virtual currency investments, Kotsalos said investors should exercise caution, as even some legitimate securities offerings can be risky.
