9 Top Investor Threats and How to Avoid Them | Burford Perry, LLP

Despite advances in technology, increased consumer education, and abundant access to information, investment-related scams remain prevalent and will only increase in 2020. Some experts say after a year of strong stock market results in 2019, scammers will use those gains to craft new and convincing sales pitches.

In addition to capitalizing on last year’s market success, investment scam artists have fresh and innovative methods with which to scam people – including using the recent volatility of the stock market as a scare tactic. Ranging from cryptocurrency scams to social media fraud, new categories of investor threats remain one of the top investor threats for 2020, according to the North American Securities Administrators Association.

Instead of trying to learn about and protect against every single potential threat, investors should be aware of several common threats and issues.

Investor threats still fruitful for fraudsters include:

Unregistered Individuals

A person acting as a sales agent for a legitimate company selling stocks, bonds, or other investments to the public must be registered to do so. Should you choose to invest with someone who is not registered to sell securities in Texas, the likelihood you’re putting money into a fraudulent investment increases. Unregistered persons perpetrate much of the fraud targeting investors. In fact, almost all criminal actions undertaken by the Texas State Securities Board involve people unregistered with the Securities Commissioner.

Investors should always confirm the person they are considering investing with is registered with the State Securities Board by visiting the agency’s website. And, if they are registered, you can request a free regulatory background check on them at the website.

Unregistered agents often offer “deals” that are not subject to all the laws and regulations designed to protect investors. A common red flag is investments that sound “too good to be true” and come with guaranteed high returns at no risk.

Oil and Gas Offerings

Because of complicated legalese used in drafting private oil and gas offerings, the investment opportunities are complex and full of technical terminology. Oil and gas investments are also generally considered speculative because it is difficult to accurately determine how much oil or gas will actually be produced. As well, oil and gas drilling partnerships are difficult to liquidate due to long holding periods.

Be very cautious when considering all private oil and gas investment offerings. Make sure the promoter offering the investment is registered to sell securities. It is also prudent to get a second opinion by consulting with an independent, registered financial professional as to the quality of the potential investment.

Investors should be wary of the following language regardless of the platform on which the investment is shared:

  • No risk investment
  • Guaranteed to make money
  • Huge discovery in a nearby oilfield
  • Only a few shares left so act fast

Promissory Notes

Promissory notes are debts similar to loans or IOUs. It can still be difficult for even an educated investor to analyze promissory notes that are broadly marketed to the public. While legitimate promissory notes exist, they are typically not sold to the public and instead are marketed to sophisticated or corporate investors with the necessary resources and experience to make a large investment. Promissory notes marketed broadly to the public and individual investors often turn out to be scams.

Packaged and sold to investors looking for an alternative to low yields, promissory notes are marketed as high-yield, no-risk sources of income. If you are considering investing in a promissory note, first make sure the person selling the note is registered to sell securities in Texas.

Short-term promissory notes top the list of investment scams in the United States. A recent survey of U.S. state securities regulators found these types of investments to be the most likely to give rise to complaints. While all promissory-note based fraud schemes are unique, they can share some common characteristics:

  • The scheme is run through an insurance agency instead of a financial planning company
  • Investors are told to expect high rates of return with very low risk
  • The notes are “guaranteed” or “insured”
  • The investment is not registered with the Securities and Exchange Commission nor the Texas State Securities Board


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