FTC FACTS for Consumers

FOR THE CONSUMER 1-877-FTC-HELP

www.ftc.gov FEDERAL TRADE COMMISSION

3. A promoter tells you not to worry 

about any risk in the venture you’re 

considering. The investment is bonded 

and insured for $50 million and you’ve 

received an insurance policy to prove 

it. You call the insurance company and 

a representative confirms that they do 

indeed have a bond for the venture

you’re considering.

SOLID RI$KY

4. A promoter gives you names of several 

satisfied customers around the country. 

When you call, one claims to be an 

attorney, another a small businessman, 

and a third a retired professional. All say 

they have received returns from investing 

with the promoter and are making profits.

 SOLID RI$KY

1. A promoter tells you he’s selling shares 

in a partnership. You confirm that a 

large, legitimate firm is making huge 

profits in a similar business and its stock 

is doing well. Your promoter says only 

a few shares in his partnership remain 

— and they’ll be gone if you don’t send 

your money by wire transfer. Buying into 

the next available partnership opportunity 

will cost three times as much.

SOLID RI$KY

2. A promoter sends you glossy materials 

by overnight courier. An enclosed 

note mentions that the business is 

headquartered in New York, and that 

offices are located in Chicago, Los 

Angeles, and Washington, DC. A call 

to directory assistance in those cities 

confirms that the promoter has addresses 

in each one.

 SOLID RI$KY

T o invest or not? That’s the question when a promoter calls with an offer that 

sounds like a sure thing. Fraudulent investment promoters lure consumers by 

claiming that the investment can’t miss. But the promise of big profits usually 

turns out to be a costly hoax.

Can you tell whether an investment opportunity is solid or risky? Test your investment I.Q. 

with this quiz.

INVESTMENTS

Test Your 

Investment 

IQ
Facts for Consumers

5. In a phone call, a promoter says the investment 

he’s offering is expected to return about 30 to 40 

percent a year, beginning in about 12 months. 

Best of all, based on the track record, he says 

there’s no significant risk.

SOLID RI$KY

6. A promoter tells you on the phone that the 

investment he’s offering is expected to return 

about 30 to 40 percent annually within about a 

year — and your entire investment in 18 months. 

You check the written materials he sent and find 

a disclosure: The investment is high-risk and you 

could lose all your money. You don’t find any 

written claims about the returns.

SOLID RI$KY

7. Because you’re considering investing in a 

venture in the state of Heartland, you call the 

Better Business Bureau and Attorney General’s 

Office in the state capital. They tell you there 

are no complaints against the company. You do 

some research and find an article on your venture 

in a local Heartland business paper. The article 

states that your venture is a multi-million dollar 

investment firm and its principals have been in 

the investment business for a combined 30 years.

SOLID RI$KY

8. A promoter tells you his company has structured 

an investment opportunity as a debt-free general 

partnership. The partnership will raise capital for 

a sure-fire high-tech telecommunications business 

in rural areas. Large corporations are just getting 

into the business, but because of legal restrictions 

and profit margins, they’re getting into large 

national markets only.

SOLID RI$KY

9. A promoter says your investment has been 

approved as safe for IRA funds. He sends you 

printed forms for a company known as IRAUSA. When you call IRA-USA, a representative 

tells you that the company manages $100 million 

in IRA funds. You call IRA-USA’s bank. IRAUSA’s bank tells you IRA-USA has over $100 

million in its accounts.

SOLID RI$KY

10. You’re considering buying a $10,000 share 

in a $10 million venture that you learned about 

through a telemarketer. You see the following 

chart on the promotional materials you got in

the mail:

ESTIMATED USE OF PROCEEDS:

Asset Acquisition: 50% $5,000,000

Marketing Costs: 15% $1,500,000

Offering Costs: 10% $1,000,000

Working Capital: 15% $1,500,000

Consulting Fees: 10% $1,000,000

 The promoter tells you that sales commissions do 

not exceed 10 percent and that the remainder of 

the money raised will finance your venture.

SOLID RI$KY

What’s Your Score?

1. RI$KY. Even before they’ve sold the first share 

of stock, scam artists tell investors that only a 

few shares are left. But high-pressure sales tactics 

always mean high-risk investments, and investing 

thousands of dollars overnight is high risk. Don’t 

let any promoters fool you by equating their 

ventures with those of large corporations. The 

only track record that matters has to do with the 

specific venture you’re considering.

2. RI$KY. Anyone can rent luxury office space 

— even fraudulent promoters. But it’s more 

likely that they have a “mail drop” at a luxurious 

address — a rented box for receiving mail that 

is forwarded to another location. In fact, each of 

the “offices” may be a mail drop, an apartment, 

or even a boiler room. As for glossy promotional 

materials, they are essential tools of the trade. 

Scam artists know that these materials may 

be your main source of information; they’re 

willing to spend money to lend credibility and 

sophistication.
Facts for Consumers

3. RI$KY. Before you rely on an insurance or 

bonding company, use independent resources to 

verify that: the insurance or bonding company 

exists; the policy exists; the insurance or bonding 

company has the assets to pay the investors; and 

the investors are the beneficiaries of the policy, 

not the promoters. Verifying a successful history 

of under-writing investments is the only way to 

make this information useful.

4. RI$KY. The people you talked with may be 

“singers” paid by the company to give a good 

recommendation. Even if references are investors 

and exactly who they say they are, a promoter 

may be paying them special “dividends” — to 

induce them into giving positive references.

5. RI$KY. High returns carry a high degree of 

risk. A salesman who doesn’t disclose this is 

being dishonest. Even investing in the stock 

market is risky: The market can turn down.

6. RI$KY. Get profit projections in writing. Ask 

for evidence of the promoter’s profit projections 

and try to confirm them with independent 

sources. If written materials say you could lose 

all your money, believe it. Investing is risky. If 

the talk is rosy but the written materials paint an 

ominous picture of the risk, trying to recover any 

money you’ve invested could be difficult.

7. RI$KY. Just because no complaints have been 

lodged against a company doesn’t mean it’s a 

bona fide operation. Even information in local 

business papers could come from the promoter’s 

press release. Find an independent source or an 

expert you trust for information on the company’s 

track record. Otherwise, consider the company 

an unknown and high-risk investment.

8. RI$KY. General partnerships often impose risks 

on the partners as individuals. Scam artists often 

structure investments as general partnerships 

as a way to avoid securities regulation. But 

some partnerships may be securities and subject 

to regulation despite a promoter’s claim. In 

addition, a partnership may be debt-free because 

it has no business history or assets. The reason 

a large corporation enters only a “top” market 

may be that it is the only place entrepreneurs are 

likely to make a profit.

9. RI$KY. No government agency reviews 

investments for self-directed IRAs. To see if 

you face tax consequences for using your IRA 

money on a venture, have an independent tax 

consultant check any potential investments. Don’t 

be impressed by IRA trustees with large holdings 

and accounts. The Securities and Exchange 

Commission sued one IRA promoter in 1996 

who allegedly transferred more than $270 million 

from more than 14,500 consumers’ IRA accounts 

to fraudulent telemarketers and unregistered 

securities promoters. Do your homework!

10. RI$KY. Once you invest, you should receive 

an accounting of your funds from independent 

sources as a matter of routine. Otherwise, you 

have no guarantees that your money is being 

used as you were told. Fraudulent promoters 

often hide costs in their charts. “Marketing 

costs” may mean the telemarketing costs of 

selling investments to people like you. The 

principals behind the venture may call themselves 

“consultants” and take a share of your investment 

as their salary. These deceptions and the 

promoter’s commission alone could cost you 

a significant portion of your investment. Even 

your partnership’s “asset” may not really cost $5 

million. That may be the price the scam artist is 

charging your partnership to “acquire” an asset 

that’s really worthless.

For More Information

These government agencies and business 

organizations register, regulate, investigate, or 

monitor companies and individuals who offer 

investment opportunities. If you have questions 

about a company or an individual, or you wish to 

make a complaint, contact one or more of these 

offices, as appropriate. When you seek information, 

understand that the absence of complaints filed

with governmental and private agencies does not 

mean that a company or an investment is

necessarily sound.
Facts for Consumers

1-877-FTC-HELP FOR THE CONSUMER

FEDERAL TRADE COMMISSION www.ftc.gov

July 1997

• The FTC works for the consumer to prevent 

fraudulent, deceptive, and unfair business 

practices in the marketplace and to provide 

information to help consumers spot, stop, and 

avoid them. To file a complaint or to get free 

information on consumer issues, visit

www.ftc.gov or call toll-free, 1-877-FTC-HELP 

(1-877-382-4357); TTY: 1-866-653-4261. The 

FTC enters Internet, telemarketing, identity theft, 

and other fraud-related complaints into Consumer 

Sentinel, a secure, online database available to 

hundreds of civil and criminal law enforcement 

agencies in the U.S. and abroad.

• Your State Attorney General’s office and 

your local District Attorney’s office investigate 

and prosecute fraud cases. You can find their 

telephone numbers by checking your local 

directory in the state and local government 

section.

• Your State Securities Commission, Securities 

Department, or Department of Corporations 

regulates the public offer and sale of securities by 

companies in your state. You can get the name 

and telephone number by calling the operator 

in your state capital or visiting NASAA on the 

Internet at www.nasaa.org.

• The Chief United States Postal Inspector 

(USPIS), United States Postal Service handles 

complaints about and has jurisdiction over 

fraudulent investment services that use, advertise, 

or sell through the mail or by overnight 

courier service. Write the USPIS at Criminal 

Investigations Service Center, Mail Fraud Unit, 

222 S Riverside Plaza, Suite 1250, Chicago, IL 

60606-6100; call 1-800-FRAUDIS (372-8347); 

or visit www.usps.com/postalinspectors on the 

Internet. The Federal Bureau of Investigation 

also has jurisdiction when investment offerings 

constitute mail or wire fraud, or other violations 

of criminal law.

• The Commodity Futures Trading Commission

regulates most firms that deal in commodity 

futures markets. Futures trading markets include 

petroleum products, U.S. government securities, 

foreign currencies, options on futures contracts, 

and dealer options. Write the Commodity Futures 

Trading Commission at 1155 21st Street, NW, 

Washington, DC 20581 or visit www.cftc.gov on 

the Internet.

• The Securities and Exchange Commission is a 

federal agency that regulates the public offer and 

sales of securities. Call the SEC toll-free at

1-800-SEC-0330 or visit www.sec.gov on

the Internet.

• The Better Business Bureau mediates disputes 

between consumers and businesses and may 

be able to inform you about complaints lodged 

against local investment firms. Contact the 

BBB in the city in which the firm is located 

for information or to report a problem. For the 

phone number of an out-of-state BBB, write to 

the Council of Better Business Bureaus,

4200 Wilson Boulevard, Suite 800,

Arlington, VA 22203.

• The National Association of Securities Dealers

is a self-regulatory organization that governs 

stock brokers. Check your phone directory for a 

local district office of the National Association of 

Securities Dealers, or call toll-free

1-800-289-9999.

• The National Futures Association is a selfregulatory organization that governs all 

registered individuals and brokerage firms that 

sell commodities. Call the National Futures 

Association toll-free at 1-800-621-3570.

Produced in cooperation with the North American Securities Administrators Association.

The FTC and NASAA are proud to be part of the Alliance for Investor Education.