Investment Fraud

Todd Rokita

Indiana Secretary of State

Americans lose an estimated

each year to investment fraud

$40 billion

Why? Lack of financial awareness Poor planning early in life Low rates of return

– Certificates of deposit, savings accounts, etc.

Rash decisions “Easy money” Too trusting Fear

The Victims Include... Doctors

Lawyers

Teachers

College Students

Business People

Retired/Elderly

No one is immune to fraud. Anyone can become a victim.

Outrageous Promises “Double your money in ninety days!”

This is a risk-free guarantee

High reward with low risk

You are lucky to be getting in on the ground floor

Financial Professionals

Unsuitable investments

Poor investment advice

Fraudulent broker acts

Insurance agents/unregistered agents

What Can Be Done?

Report suspicious or fraudulent activities

Check into the investment opportunities and the people selling them

What Can Be Done?

Financial Education

Investigate Before You

Invest

•www.crimes-of-persuasion.com

•www.ihatefinancialplanning.com

•www.fl2010.com

•www.jumpstart.org

•www.econed-in.org

•www.sec.gov

•www.nasaa.org

•www.sos.IN.gov

Investment Myths

High reward with no risk Scams do not happen to smart people .com companies are a sure bet This investment is guaranteed/insured No written information is available No securities license or registration is

necessary to sell this

Red Flags This offer is only good today/this is a

limited-time opportunity

Just give me your credit card and checking account number

This is only available to a select group

I get nothing out of this deal

Red Flags Do not tell anyone -- not even family

I will come to you; you don’t have to come to me

Foreign banks pay great interest rates and have no taxes associated with them

This is “insider” information

Common Types of Fraud Pyramid Schemes

Promoter/Scam Artist

Investor Investor Investor

InvestorInvestorInvestorInvestorInvestorInvestor InvestorInvestor Investor

THE CLASSIC PYRAMID OR PONZI SCHEME

II I II II I I II IIII I I II II I II I II

Level 1Promoter promises large

returns to initial investors toinduce investment.

Level 2Word spreads and more

investors participate.

Level 3The promoter usessome of the money

from laterinvestors to pay off

earlier investors,while keeping therest for himself.

The Result: The scheme eventually collapses.Most of the investors lose their investments becauseinevitably there are not enough later investors to pay

the returns of the earlier investors. The only surewinner is the scam artist.

Tips:1. Be suspicious of promoters promising large returns on your investment in

a short period of time. If it sounds too good to be true, it probably is.2. Don’t be persuaded by enthusiastic testimonies from other investors.

Common Types of Fraud

Ponzi Schemes• Charles Ponzi• Don Pratt

International Prime Bank Schemes• Royal Meridian Bank

Affinity Fraud• The Church of God, Inc.

Promissory Notes• James Carpenter

Common Types of Fraud Unscrupulous Brokers

• Poor advice• Unsuitable investments

Senior Fraud• Variable and charitable gift annuities• Viaticals• Promissory notes

Insurance Agents/Unlicensed Agents• Any agent selling securities must be licensed through the

Secretary of State Todd Rokita’s Office

Avoiding Fraud

Hang up the phone Ask questions! Remember, those touting investments

are not doing it to help you out Contact Secretary of State Todd Rokita’s

Office for information regarding the opportunity and the person offering it

Secretary of State Todd RokitaWe Are Here to Help Hoosiers!

Fraud Hotline (800)223-8791

Website www.sos.IN.gov

Location

302 W. Washington St. Room E-111 Indianapolis 46204

Report Investment Fraud

Check On– Securities– Franchises– Loan Brokers– Exempt Filings– Broker Dealers– Investment Advisors– Enforcement Actions