Financial scams to watch out for in 2020

FRANKFORT, Ky. (WTVQ) – The state issued an alert Thursday for financial scams to watch out for in 2020.

The Kentucky Department of Financial Institutions (DFI) within the Public Protection Cabinet, in coordination with the North American Securities Administrators Association (NASAA), identified that promissory note, real estate, social media and cryptocurrency investment scams, along with ponzi schemes, are the top five financial scams to avoid this year.

DFI Deputy Commissioner and Securities Administrator Marni R. Gibson said, “Many of the threats facing investors involve private offerings, which are exempt from federal securities registration requirements and are not sold through public stock exchanges. Unregistered private offerings generally are high-risk investments and don’t have the same investor protection requirements as investments sold through public markets.”

Kentuckians should be on the lookout for these top five scams, and follow these tips to avoid falling victim:

Promissory Note Scams: A company or person who publicly markets promissory notes with false promises of high rates of return.
Tip: Know that legitimate promissory notes are not usually sold to the general public. Always research independently and verify the company before making any purchase and know that if someone calls trying to sell you a promissory note, it is likely a scam.

The state says in 2019, DFI’s Securities Division received 42 complaints; nearly 20-percent of those involved promissory notes in some capacity. In total, 30 actions were taken by DFI, including agreed orders and reached settlements that were the result of administrative complaints or investigations, while some cases are still ongoing.

Real Estate Investment Scams: Investment pitches involving property flipping and investments financed through means other than traditional bank borrowing.
Tip: Property flipping financed many ways can be done lawfully, but it can also be a source for fraud. Avoid dealers that urge you to move too fast and take extra steps to make sure your investment is secure and that the broker is properly licensed.

Social Media/Internet-based Investment Scams: Social media-related investments and solicitations are a growing source of concern for DFI. For example, DFI recently entered an emergency Cease and Desist Order against Metals.com to discontinue acting as an unregistered broker-dealer and investment adviser immediately. Kentucky residents invested at least $1.5 million and many of the solicitations were connected to social media platforms.
Tip: Be wary of unsolicited social media offers or sales pitches as they may likely be part of a fraudulent investment scam and remember if it sounds too good to be true, it probably is.

Cryptocurrency-related Investment Scams: Before you jump into the crypto market, know that the financial products are extremely risky and may be nothing more than a scam. The market does not fit exactly into existing regulatory frameworks, making it easier for scammers to steal.
Tip: There are numerous cryptocurrency schemes and it is difficult to stay ahead of all the ways scammers can use the products to scam. Before investing in the market, research online ways to avoid fake markets, phishing websites, scam coins and in-person transfer scams.

Ponzi Schemes: Similar to pyramid schemes, this scam promises high rates of return with little risk to investors. Con artists claim they can generate returns for early investors by acquiring new investors.
Tip: Avoid any investment where someone offers you a guaranteed return in exchange for an upfront deposit. It is likely a scam.

Other tips include always asking if the salesperson and the investment itself are properly licensed or registered. This information can be confirmed by the DFI. Working with a properly licensed investment professional affords investors certain legal protections.

“For the same reasons you wouldn’t go to an unlicensed doctor or dentist, you should avoid unregistered investment salespeople and their products,” said Gibson.

Information about each of the 2020 investor threats and contact information for all state and provincial securities regulators is available on NASAA’s website at https://www.nasaa.org/.

The DFI also offers a wide range of free investor education materials and can help investors research the background of those selling an investment or providing advice regarding its purchase. Call DFI toll-free at 800-223-2579 or visit the website at http://kfi.ky.gov/Pages/default.aspx for more information.

Financial and business-related scams, including business impersonation scams and tech support scams, were included in the top ten most common scams affecting Kentuckians in 2019, according to the Kentucky Office of Attorney General.

To file a consumer complaint or to report a scam with the state, click here.

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