The NC Department of the Secretary of State Securities Division regulates the offer and sale of investments in the state of North Carolina. Major responsibilities include:

•  Administering and enforcing the NC Securities Act
•  Screening and registering securities offerings
•  Screening and licensing brokerage firms and their representatives
•  Registering investment advisers and their representatives
•  Reviewing investor complaints
•  Protecting and educating investors through the Division’s Investor Education Program

Q&A With Secretary of State Elaine Marshall on Investor Protection

•  When most people think of con men and scam artists, they think about fast-talking crooks that they could quickly recognize as being after their money. Is that perception accurate?

No, just the opposite is true in most cases. Typically, financial crooks tend to be experts at appearing to be sincere and caring people. They shamelessly use religious affiliations and other attributes they may share with their intended victims to build up trust levels before they attempt to pull off a scam.

•  Don’t most investment scams sound so silly that a thinking person would realize it’s a scam and know not to invest in it?

No. Today’s crooks use all kinds of clever tricks to make their scams seem real, from printing beautiful materials, to tricking prominent people in the community to endorse what they are doing. Early investors into their cons often receive high returns out of the funds scammed from later victims to “prove” the deal is real. They also often buy or rent expensive homes and luxury cars to fool people into thinking they have a successful investment product. To the victims, it looks like the deal is very real and making lots of money.

•  Are senior citizens more at risk from investment scams than younger people?

Yes! Crooks target seniors far more than they do younger people for a couple of reasons. First and most importantly, seniors have money! They have retirement accounts, savings, and they usually own their own homes. Young people today often simply do not possess enough savings to interest the crooks. Also of course, you cannot dismiss the fact that older people are often more polite, sometimes lonely, or possibly suffering from some cognitive impairments, all of which can give these crooks the openings they need to start pitching their scams. (For more information, see our brochure “Frauds Aimed at Senior Citizens” available at http://www.secretary.state.nc.us/sec/brochures.aspx.)

•  As our State’s top investment protection regulator, are you able to stop these scams when they happen?

We at the Secretary of State’s Office have a great track record of making arrests and getting increasingly long prison sentences for these con artists. But we typically are only able to catch them after a scam has started. This means there are already victims who have lost their savings by the time we are able to make a case and an arrest. Virtually every stock broker and investment adviser must register with either the Securities and Exchange Commission or with my office in order to do business lawfully in North Carolina. If the person is NOT registered, that is a huge red flag that the investment might be a scam. One five-minute telephone call to my office could prevent someone from losing his or her life’s savings.

•  But, when you do make an arrest, can’t the victims’ get their money back?

Sadly, in most cases, no. In most cases the courts can only get back a percentage of the victims’ money and sometimes it is a small percentage. The reason for this is that most investment crooks spend incoming monies very quickly. Typically, they use new victims’ money to keep their scams looking successful. Also, these scam artists tend to live extravagant lifestyles financed by the funds they are taking from their victims.

•  So, it is very important for the senior citizen investor not to become involved with one of these scams in the first place, because if they do, most likely they will lose part or all of their invested money?

That’s absolutely correct. As an investor you are far, far better off to never get involved with a scam because the odds are you are going to lose a lot of money you can never get back through the courts.

•  So, what are the warning signs that the person talking to you about an investment is secretly running some kind of scam?

Look out for promises of too-good-to-be-be true returns and “guaranteed” profits. These are big warning signs. Only government insured savings are “guaranteed” to yield set returns, most often at fairly low rates. Another warning sign is if you hear a lot of jargon about things such as currency trading, promissory notes, and other things you do not really understand. If you do not understand how the investment makes money, seriously consider walking away from the deal. And of course, the biggest warning sign of all: the seller saying that the investment is a “secret” just for a select few friends. Beware sales people pitching secret deals.

•  When you talk about sales pitches being made to people because they supposedly have something in common with the seller…is that the “affinity fraud” scam we hear about in the news?

Yes. What the crooks do in these cases is they try to bond with potential victims through things such as clubs, civic groups or churches to “prove” their victims should invest with them. They will also use shared age, race, ethnic background or other qualities they have in common with their targeted victims as a means to get their victims to trust them. That’s called “affinity fraud.” (For more information, see our brochure “Affinity Fraud” available at http://www.secretary.state.nc.us/sec/brochures.aspx.)

•  So, once a crook sets up in a town, what is the most common kind of scam they will run?

No matter how you dress it up, the most common scam is still the classic Ponzi scheme. This is where the crook actually pays money back out to the first people to invest with him to show others in the community that the supposed investment is paying big bucks. Those early payments then lure in more victims, and part of their money is used to keep paying back some investors to fool even more people into thinking there is a real investment product. In fact, there is no real product—it is just that the crook is using part of the newer victims’ money to make some payments back to the earlier victims. Over time, the Ponzi scheme falls apart typically leaving large numbers of victims with big losses.

•  Is there some way our readers can learn more about Ponzi Schemes and other scams?

Yes, every year we work with other groups dedicated to helping seniors to put on a series of investor protection workshops around North Carolina. These are great events where you can spend a couple of hours getting the pointers you need to avoid scams. I urge everyone to attend one of these workshops when they come to your area.

Also, we have a special program now that educates doctors and medical staff people on what warning signs to look for that may indicate their senior patients have become the victims of a financial con. Everyone can visit our Secretary of State website at sosnc.com to learn more. (For more information, see our brochure “Ponzi Schemes” available at http://www.secretary.state.nc.us/sec/brochures.aspx.)

•  Ok, so bottom line, what should seniors, and their friends and families, do when they feel like someone is trying to pull an investment scam on them?

First, never give in to pressure tactics to go on and invest before you are sure the investment is real. Next, contact us at the Secretary of State’s Office to see if the seller is registered and if the product is registered. Also we can tell you if there are any complaints against the seller. And always, remember the biggest rule of investing: If it sounds too good to be true, it probably is!

For more information, contact the NC Securities Division at (919) 733-3924 or toll-free at (800) 688-4507. Visit us on the Web at http://www.secretary.state.nc.us/sec/.

If you or your group would like to schedule an investor education program, contact John Maron at (919) 807-2106 or via email at jmaron@sosnc.com.