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Be Wary of Investments Too Good to Be True

September 03, 1993|From Associated Press

NEW YORK — "It's a stranger on the telephone -- and he wants to make us rich!"

In the whole world of investing and money management, few more unlikely and dangerous propositions than that one ever come along.

Yet sufficient numbers of people go for it, over and over again, to keep a whole industry of boiler-room financial frauds alive and thriving, in good times and bad.

"The golden rule for avoiding investment scams has long been, 'if it's too good to be true, it probably is,"' says the Institute of Certified Financial Planners in Denver.

"Yet Americans still are stung for millions of dollars every year by con artists offering investment deals that are, literally, too good to be true."

All this wouldn't happen if the scammers weren't good at what they do -- sounding persuasive and legitimate, appealing to a wide range of hopes and fears common to the human race.

So anybody with money to manage needs a defense system against this breed of predator.

"First, never invest over the telephone. Avoid 'buy-now' sales pitches," says the financial planners' group. "Be wary of outrageous promises, such as excessively high interest rates.

"If someone promises to double your money, it probably means they are promising to double their money."

"Older Americans are the No. 1 target of investment con artists," adds the North American Securities Administrators Assn., a Washington group of state securities regulators.

"Older Americans are of the generation that was taught to be courteous at all times to phone callers, as well as people who visit them at home. Con artists will not hesitate to exploit the 'good manners' of a potential victim.

"You are under absolutely no obligation to stay on the telephone with a stranger who wants your money. In these circumstances, it is NOT impolite to explain that you are not interested and hang up the phone."

"Check out strangers touting strange deals," NASAA warns. "Say no to any investment professional or con artist who presses you to make an immediate decision.

"Never judge a person's integrity by how they 'sound.' Watch out for salespeople who prey on your fears. Remember that fear and greed can cloud your good judgment."

At any given time, scammers can build a pitch based on current hot spots in the financial markets. For example, this year's rally in gold prices provides a natural staging platform for frauds on a precious-metals theme.

But the market for rip-offs is by no means limited to people looking to hit the jackpot. These days, fraudulent operators are naturally attracted to conservative investors whose cash flow has been shrunk by falling interest rates.

This is a busy arena for more legitimate advisers and salespeople as well. But no matter whom you are dealing with, experts say it can be a serious mistake to try to keep your current yield high by moving money to riskier investments.

"Virtually every category of investor has suffered a cut in income due to falling interest rates and the recession," says John Dessauer, publisher of Dessauer's Journal of Financial Markets.

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