FOR IMMEDIATE RELEASE
June 17, 2008
Contact: Jason Moon 517-335-1700

LANSING – As summer approaches, the Office of Financial and Insurance Regulation (OFIR) today warned Michigan consumers that scam artists are using every trick under the sun to separate unsuspecting investors from their hard-earned dollars. OFIR cautioned investors to screen themselves from hot energy-related tips, speculative real estate promotions, unsolicited invitations from new online “friends” and complex, opaque investment products that fail to offer clear disclosures of their risks and costs.

“Criminals watch the news and are incredibly adaptable. Recent turmoil in the credit and real estate markets has led some investors to seek higher returns in non-traditional, speculative investments – a proven feeding ground for unscrupulous promoters and salespeople,” said OFIR Commissioner Ken Ross. “Investors today are facing enough challenges without having to worry about being swindled by get-rich schemes. The key to avoid getting burned by any investment is to make sure you understand the product being offered and thoroughly check both the salesperson and the product with our agency. Remember, if it sounds too good to be true, it usually is.”

As the housing market continues to reel from the subprime lending crisis, schemes promising large returns from various types of real estate-related investments also are increasing.

OFIR also warned that reverse mortgages pose several risks: they are not appropriate for every investor; if the homeowner chooses the option of accepting the funds all at once in a lump sum it may create a sudden supply of cash that may be diverted into other bad investments; and they enable promoters to gain access to a senior citizen’s entire financial profile. Such disclosure of other assets can lead to yet more scams—and losses. 

In a new twist on affinity and online investment fraud, unscrupulous individuals are trying to use social networking websites to lure people to meetings that may promote fraudulent or unsuitable investment products.

“Social networking websites create an environment ripe for affinity fraud,” Ross said. “Scam artists can take advantage of the fact people freely share information with both their real and ‘virtual’ friends by posting it to their profile. Communication tools provided by some social networking websites make it easy to advertise and promote investment scams to a wide audience for free.” 

OFIR’s recent investigations related to auction-rate securities (ARS) have reinforced that investors should remain cautious when pitched complex investment products accompanied by deficient disclosures or when advised to concentrate their investments too heavily in one investment product.

In addition to these trends, OFIR warned that a number of familiar investment traps are likely to persist for the foreseeable future. Prominent among these is the sale of complex hybrid financial products, such as variable and equity-indexed annuities, to investors for whom they are not suitable—typically seniors. These products frequently contain features so complicated that even licensed financial professionals are not adequately trained to understand them.

If Michigan investors have any questions about an investment firm, professional or product, please contact OFIR toll-free at (877) 999-6442 or online at www.michigan.gov/ofir.

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