Strange - But true!
Investment offers in which the investor always loses

The Office of Financial and Insurance Regulation (OFIR) receives hundreds of complaints a year about fraudulent investment opportunities. In 2002, OFIR processed and investigated over 168 consumer complaints regarding fraudulent activities on behalf of Michigan consumers or about Michigan-based agents or companies.

To help consumers understand that there are a variety of stories, scenarios and scams out there waiting for them, OFIR has compiled some of the strangest and most unbelievable investment offers. You may read the following stories and say "It can't happen to me" or "They were just fool-hearty." But, even the most ardent investor can be taken for a ride. People will try anything to get your hard-earned money.

To preserve the confidentiality of the consumers involved, the names of all involved have been changed and the amount of losses and percentage of return on investments have been also been altered. Importantly: the basic facts are real.

Investing in unlicensed (unregistered) securities is unwise and costly. Restitution of the complainant's investment, if any, is through the criminal justice system. The Office of Financial and Insurance Regulation can only take administrative action against licensed (registered) entities and individuals. OFIR can sometimes make criminal referrals to the Attorney General's office - rarely will an administrative process get the complainant's money back.

Also, see the links on the OFIR web site for information on where and how to begin your investment research. Above all, invest with reputable firms and agents that are licensed (registered) in Michigan: http://www.michigan.gov/cis/0,1607,7-154-10555_13285_13299---,00.html

Moral of the Story

Any investment touting double- (or even triple-) -digit returns should be viewed skeptically. The return on investment, if it is legitimate, will likely be in the same range as bank certificate of deposit (CD), money market funds, Treasury bills, bonds and notes. If CDs are paying 3%, it is not likely that a legitimate, relatively safe investment would be paying 30%, and certainly not 115%!

It is important to do your research! The money you save is your own and worth hanging on to, rather than letting it "sail away" with some unlicensed (unregistered) fraudster.

Drink no wine before its time…

A Michigan investor with some extra cash decided to invest in, of all things, wine contracts, sold by a company located in the Netherlands. Mr. Anders, a Michigan investor, was convinced that giving $30,000 to a foreign company to invest in fine wines was a wise decision.

Can you guess what happened when Mr. Anders tried to contact the company to get his money back from the ‘investment'? Well, the company first told Mr. Anders that purchasing fine wine contracts was like a mortgage, you have to keep paying otherwise, you'll lose your "house" - or in his case, his "fine wine" contract.

Mr. Anders was persistent, and the company stopped taking his calls. Mr. Anders will now have to seek legal counsel in an effort to get his money back. The chances of him receiving a small amount of his ‘investment' back are very slim.

Additionally, the Office of the Kansas Securities Commissioner served the same company with a Notice of Intent to Issue Permanent Cease and Desist Order on May 13, 2002. The company was charged with offering unlicensed (unregistered) securities through unlicensed (unregistered) broker-dealers or agents in Kansas.

What lessons can we learn from Mr. Anders' situation? Do your research. Never, ever invest in companies or securities that you know little about. An overseas investment is also extremely risky. If you decide to take a chance and invest in risky instruments, be sure you can afford to lose all your money.

Promissory Note Offered Via Email

Mr. Brown, from New Jersey, received an e-mail from Chad Smythe, a Michigan "investment broker" who promised Mr. Brown a 100% return on an investment in 90 days. Chad was very sincere and, evidently, very persuasive in his e-mail "conversations" with Mr. Brown.

Chad told Mr. Brown, via e-mail, that he would issue a valid 90-day promissory note to ensure that Mr. Brown would receive $15,000 plus $15,000 interest. The deal was too enticing and Mr. Brown was too excited to turn down this offer - doubling his $15,000 investment in three months - what a deal!

No signs or possibilities occurred to Mr. Brown that this investment was too good to be true. He wired the money to Chad, a Michigan "investment broker" and received via e-mail the "valid" promissory note.

Three months came and went and so did Mr. Brown's $15,000. Mr. Brown will have to retain counsel to sue Chad for return of his money.

An anonymous e-mail promising double your money back is not a prudent way to invest your hard-earned dollars. Sad, but true: as wonderful as the internet is, it is not the place to begin an investment relationship with someone you have never met.

Before you invest, do your research. Find out if the person is licensed (registered). Is the sale of a "promissory note" by a licensed (registered) agent or firm permissible under Michigan securities laws?

Don't let the promise of a big return ("double your money" "100% return on your investment") cloud your mind.

Going Nowhere Fast

Jake Hammer had an investment opportunity for his good friend, Alvin Smolen. Jake was an enterprising entrepreneur and presented Alvin with a chance to get in on the ground floor of his mobile home rehab business - Rehab Mobile Homes, Inc. (RMHI).

For a mere $50,000, which Alvin could withdraw from his retirement accounts, Jake would assure him of a better rate, 20%, than his retirement account, if he invested in RMHI.

Not wanting to pass up this golden opportunity, Alvin invested. And you know the rest. Alvin didn't do his research. If he had, he would have discovered that Jake was not licensed (registered) to sell the investment. Remember, companies must be licensed (registered) to sell securities in Michigan or they must obtain an exemption to sell securities in Michigan.

Again, as in the previous investor horror stories, Alvin's only recourse is to retain an attorney and sue Jake, his long-time friend.

Don't bet your life on it!

Can an investment return of 115% be the place to park your retirement money? Sandra Buchanan thought so. At least she thought so for her good friend, Carolyn Gordon. Sandra convinced Carolyn to withdraw money from her retirement accounts and sink $56,000 in a viatical investment.

Carolyn, trusting her friend of some 10 years, invested in a viatical contract with the outrageous claim of 115% return on her money. Again, no alarm bells rang, and Carolyn watched her money practically sail away. Well, it actually took a few years before she realized that her money was gone.

To add insult to injury, the viatical company is now in bankruptcy and is seeking additional money from Carolyn and others who invested, in order to pay the insurance premiums for those viators who didn't die, as scheduled.

Viaticals are extremely risky investments, especially now that advances in medical treatment have extended the lives of persons suffering from various diseases. Caution for the investor - do your research, a person or company must be licensed (registered) to sell investments in Michigan.

Some Paper is Only as Good Pulp It's Made From

Back in 1997, Bob Stottler, Investment Adviser in Birmingham, Michigan, spent time with neighbors and friends of his mother's cultivating (and coaxing) them into investing in securities. The trouble is, Mr. Stottler's securities investments had no value. They were worthless pieces of paper, which he touted to friends and neighbors as "investments" that would pay between 7.5% to 15% in interest.

Finally, his luck ran out, and Bob Stottler of Robert J. Stottler and Associates was sentenced on February 22, 2002 to 21 months in prison. The case was brought against him by the U.S. Department of Justice, Eastern District of Michigan. Case Number CR 01-80679.

Mr. Stottler was found guilty of mail fraud, a federal offense. His crime involved defrauding 11 Michigan investors, friends and neighbors, of $214,700. In addition to serving a prison sentence, the Court ordered Mr. Stottler to pay restitution to the Michigan investors whom he defrauded.

Because the Assistant U.S. Attorney, Jennifer Gorland, was successful in bringing the case against Mr. Stottler, there was no further administrative action that OFIR could take against Mr. Stottler. A prison sentence and repaying his former clients was a fitting punishment for someone who abused his position of trust.